over here is this fellow who has not discovered oil. He cannot disdiscover oil. He has not got the money to discover it, but they say to him in this structure, according to the answers to the questions this morning, "Before I give you a lease", the Government says, "Before I will give you an extension of your permit, you must communize this structure. There is going to be a unit here." Mr. DEMPSEY. Or drill a well. Mr. AYERS. Or your permit is canceled. Mr. GREEVER. No; you agree that you will enter into a unit agreement. Mr. AYERS. Yes; and if you do not do that, you have got to force this private individual over here to enter into the unit agreement. Mr. GREEVER. Well, you cannot force an individual owner to enter into a unit agreement. The Government cannot do that. Mr. AYERS. I appeal to the record this morning that you can do it. Mr. GREEVER. A private owner? Mr. AYERS. Certainly. Mr. GREEVER. I have heard nothing that went into the record to that effect. The CHAIRMAN. I do not see how you could do that. We have a lot of offset wells in our State and Mr. AYERS. They are talking about the structure. They are talking about The CHAIRMAN. There is a State law that governs that. Mr. GREEVER. Let me ask you; we have got a geological structure, and we will assume there is 1,000 acres, and you have 1,000 acres of deeded land on the south end of their structure, and I have an oil permit of 1,000 acres on the northern end, and you discover oil on yours. Now, the question is as to what my status is? I have seen nothing in the record here that would indicate, nor do I know anything in the law that could possibly force you to enter into that unit operation with your deeded land. Nor do I see anything in the law that can force me to go and make you or get you, by some hook or crook, into the unit operation. Mr. AYERS. That is just what you have not seen. It is in this law. Here is the idea: A man who has a Government permit asks for an extension of his permit, which is an offset to a deeded piece of land that has got production on it. He applies to the Department of the Interior, and they say, "All right; you go across the line and get that fellow on a unit operation, and we will grant you an extension; otherwise, we will not." Mr. GREEVER. No; in that case, to go to you and make a diligent effort to enter into a unit plan. Mr. AYERS. The Secretary of the Interior is privileged not to grant an extension of that permit unless you go into it. Mr. GREEVER. But unless I go and ask him. Mr. AYERS. No, unless you effect it. Mr. GREEVER. Well, I would like to ask Mr. Poole what his interpretation of that is. That is certainly not my understanding. Mr. POOLE. I think you are correct, Mr. Greever. Mr. AYERS. Do you think he is correct? Is he correct? Mr. POOLE. He is correct, Mr. Congressman. We do not mean to insinuate by any statements we have made here that that would be made possible. Mr. AYERS. Before he ever gets an extension of his permit, you are forcing to go and subsidize that individual oil man, to go with him, to come within the rule that you require. Mr. POOLE. We have never gone that far. The most we do is request him to make a diligent effort to communize the field. If he cannot unitize it, if he is unable to bring in the private landowner, then of course the Government is just as interested in protecting its royalty interests. Mr. AYERS. If he is unable to bring in the individually owned land, or the individual landowner, what are you going to do to him? You are not going to give him any extension, are you? Mr. POOLE. Oh, yes; we go ahead and issue him the permit. Has not that been the policy? Mr. STABLER. We have been doing that right along. Mr. AYERS. You show me where that is in this bill? Mr. POOLE. It is not involved in this bill. Mr. STABLER. Is that the amended bill? Mr. AYERS. Yes, sir; you have absolutely got a place where you can say to this fellow on the public lands, "If you don't get this fellow on private land, in, we will not give you a permit." Mr. GREEVER. What section do you refer to, Mr. Ayers? Mr. AYERS. I do not remember what section. Mr. Chairman, the thought that I have to convey is this: If a man who has a permit now in existence, and previous to the time that he has made applicationprevious to the time that he must make application for an extension, and the Secretary-well, really, we will all agree on that. All right, then, he makes application for an extension. Then under the rule that is promulgated now under this proposed amendment, they will say to him: Before we will grant the extension, you must go and communize this structure you must make a unit of it. That is the precedent to granting you an extension' to validate your permit, and if you don't do it your permit is going to be canceled. Now, is not that the way the law is right now; is not that the purpose of this amendment? Mr. STABLER. That has never been in the law on the regulations or practice of the Department and is not contemplated by the bill, as I read it. Mr. AYERS. What is your idea of the unit system? Mr. STABLER. The language of the extension law, the proposed law, is cooperative on the unit plan. A 100-percent unit plan, of course, would require that every operator join. A cooperative or mixed cooperative and unit plan does not so require. I may illustrate, perhaps, by the plan for the northern dome of the Kettleman Hills in California, which has been quite effective in holding down production under the present condition of surplus in that State. That is a structure that contains about 20,000 acres of productive land. Roughly one-half of that land is owned by the United States, and approximately one-half is owned by the Standard Oil Co. of California in fee. In the northwestern portion of the field there are 320 acres of production land, in other private holdings. On the east side there is perhaps 100 acres of private land in other holdings. When the unit agreement for the structure was negotiated, the Standard Oil Co. said, in effect: Our holdings here are too large to go into a unit, unless we are the operators. The other people would probably not like us to be the operators. We will agree to develop our portion of the field in the same manner that the portion that goes into the unit is developed. So we will not enter into a unit agreement except as to our Government lands. They have Government lands and leases also. That, in effect, places under one plan, though under different ownerships, by cooperation, over 19,000 acres of the field. There are other private landholders, amounting to approximately 400 or 420 acres, who refuse to place oil. Some of them are producing as individuals in those areas, within the unit area, but some produce none. It is too bad they are not in, but the plan as a whole has nevertheless been effective in preventing the hot oil situation out there, such as we have had in east Texas. Mr. AYERS. The point I am making is, before you would grant an extension of a permit to a bona fide holder of a permit, under your unit plan, that you force him to bring everybody within that structure into the unit plan. Mr. STABLER. That never has been done, sir. Mr. AYERS. But it is to be done under this bill. Mr. STABLER. The language does not cover the case in my mind. Mr. AYERS. But it gives the Secretary of the Interior all of the power in the world to refuse a permit, and gives him all of the power in the world to make rules and regulations. In other words, they can say to a permittee on public land that adjoins private land: Before we will grant you an extension of your permit, you must get into your unit plan this individually owned land over here, regardless of who owns it. That is all I am objecting to. If I am wrong about that, I want to be corrected. Mr. STABLER. The language in Mr. Greever's bill is that leases hereafter issued shall be conditioned upon an agreement by the lessee to operate under such cooperative or unit plan for the development and operation of any such area, field, or pool, as he may approve or prescribe. That is simply a statement Mr. AYERS. "As the Secretary may approve or prescribe"? Mr. STABLER. Yes. If the Secretary prescribes it an agreement for the field, this lessee agrees that he will join in. Mr. AYERS. Sure. Mr. STABLER. He does not agree that he will make anybody else join in. Mr. AYERS. That may be the condition that the Secretary will prescribe. Here is the line [indicating], and this is public land over here in no. 1, this is private land over in no. 2; the Secretary rules, maybe, because this line runs down through the structure that before I grant you a lease on Government land over here, you must get this man owning private land over here to cooperate in a unit agreement. Of course, this bill allows that, because it is such a rule that the Secretary may prescribe. Mr. STABLER. With all due respect to the Secretary of the Interior, it seems to me he would be very foolish to attempt to do such a thing as that. Mr. AYERS. Well, with all due respect to the Secretary of the Interior, let us assume that he would do that, where am I? Or where is the little, independent permit holder over here on public land? Where am I, if he requires me to do that? I am agreeing that this Secretary of the Interior would be all right, and the next one probably would be all right, the third and fourth ones, probably, but pretty soon we are going to get under the proposition that we have got a Secretary that says: My ruling is that this unit system must include all of these people in this structure. Well, I am out, because I cannot get that fellow owning private lands to come in. He is going to do as he pleases. Mr. STABLER. Under that condition, would not the private landowner produce all of the oil? Mr. AYERS. Yes, he would do it, and he would take it all away from my permit. Mr. DEMPSEY. They immediately give you a permit. Mr. AYERS. The Government? Mr. DEMPSEY. That establishes your right pretty well to have protection. Mr. AYERS. It does not matter whether I have got any protection or not. I have got 2 years to get my production. Mr. DEMPSEY. Yes, and if you find it in that time, you are entitled to a lease. Mr. AYERS. Yes, and the minute I am entitled to a lease, they say to me, "Before you get your lease, you have got to consolidate with this fellow over here," or if it is open, public land, they will say, "Before you can get a lease, you must communize these fellows over there." This is the most dangerous thing, from that point of view, that I have ever seen. The CHAIRMAN. Suppose we have Mr. Poole give his views on it. Mr. POOLE. I would like to make a very brief statement on that. It is inconceivable to me that the situation that you have outlined would happen, because once the oil is discovered in a structure and is started to be produced on private lands, I think the Federal Government could be naturally presumed to protect their interests, and see that it was properly produced and as rapidly produced on the public lands. Otherwise, we would lose out entirely; we would lose our royalty interest. It is just as much, in my opinion, to the advantage of the Interior Department that these unit plans go through as private holdings. If it is not a success, then we are in the same position as the private permit holder; we have got to protect ourselves; we have got to join in production from the structure. We cannot close him out because we do not produce. We produce through the unit holder. Mr. AYERS. But the point is this: You have got this fellow out here with a permit, and you tell him what he must do. All right, he has not discovered oil yet, but there is oil discovered across the line on private land. His permit runs out tomorrow. He is only down. 500 feet. They know that horizon is 1,500 feet. Before they will extend his permit, they say to him, "You go over and get this private landholder in on your unit program." You can do that under this bill. You can do it. The Secretary is authorized to do that, and to sell him out right now. "If you don't do this, your permit is canceled. If you don't communize this structure, your permit is canceled." I am sure you get my point on that. Mr. CRAWFORD. May I ask a question on that? Mr. CRAWFORD. Assuming they did let his lease expire at the close of business tonight and the oil is being sucked away from your side of the line, do you think the Government is going to sit there and refuse to renew his permit, and refuse to let anyone else have that permit, or do anything, so that that wild animal under the ground will be protected? How can they get any oil out, unless they issue a permit or lease? How can they protect the Government's interests, unless they issue a permit or lease? If they do issue a permit or lease, why would not they give it to the man who has invested his labor and time in it, as you say; and why would they cancel him out and give it to somebody else? Mr. AYERS. They would not sell him out. They would not cancel him out. Here is drilling over on this side [indicating] and his permit is not validated yet. There is patented land over on the other side that has been validated. The line runs up to the structure. Now, the whole question revolves itself around the fact that the Government wants to communize the whole structure, and get their royalty out of this private land on the other side, and they will say to him, "Before we will extend your permit on Government land, we appoint you to bring the private owner into the communistic set-up." All right, he cannot do it and he cannot drill down to the production, himself, within the necessary time. All right, that lease is canceled. Mr. CRAWFORD. Why would they cancel it? Mr. AYERS. Because it has run out. They have put a rule on it. Mr. CRAWFORD. How will the Government protect its interests, unless they renew his permit or let somebody else have it? Mr. AYERS. That is the point I am talking about. They will let somebody else have it. Mr. CRAWFORD. For a higher fee? Mr. AYERS. They could do that, according to this bill, on auction. How can the poor little devil bid against the big fellow over here owning the private property? How would that little fellow have a chance in bidding against the Standard Oil Co.? Mr. DEMPSEY. What would occur, Mr. Ayers, in the event that there were no public-domain lands, but they were all privately owned, and you had a lease and I had the offset? Mr. AYERS. You have got to offset, of course. Mr. DEMPSEY. And if I fail to start Mr. AYERS. If you do not, you are robbed. Mr. DEMPSEY. If I fail to start before my lease expires, I certainly do not feel that I have any right in that lease. Mr. AYERS. You have lost your lease, of course. Mr. DEMFSEY. Do you want to make some more liberal terms applicable to Government lands? Mr. AYERS. No; all I want to do is to make the terms to protect this fellow over here. Mr. DEMPSEY. Protect him if he has not developed his lease in the life of the permit? |