Mr. LEMKE. That is taking for granted the production would have been the same and the discoveries the same as they are now?

Mr. STABLER. Yes; we make the very conservative assumption that the production on the 5 percent leases would have been at no greater rate than it has been on the sliding-scale leases. As a matter of fact, the production on the 5 percent leases is greater; it is the choice part of the area in each permit.

During the fiscal year 1934, alone, that difference by reason of the 5 percent provision, and against the average sliding-scale rate, amounted to more than $1,000,000, or more than one-eighth of the total reserves, or 28.5 percent of the revenues for that year. The chart shows that the producing States would have been benefited by such increase to the amount of $384,900.02 in 1934, or $3,537,459.09 for the entire period 1920 to 1934.

The reclamation fund would have been benefited to the amount of $538,664.31 in 1934, or $4,950,764.30, for the period 1920 to 1934; and that the United States Treasury would have benefited by such increase to the amount of $102,602.72, in 1934, or $943,002.77 in the period of 1920 to 1934.

I might point out here that the receipts of the States indicated there, the 37% percent, goes directly to the States in which the oil is produced, and in the relative amounts in which it is produced in those particular States. They are six in number. The reclamation fund, however, is distributed over all of the public-land States, and Í believe a few others.

Mr. STUBBS. If I understand you correctly, approximately $10,000,000 have gone to the middlemen, into the hands of those who have really made no investments. It is your contention that that amount should have come back to the people as a whole, the Government and the States and the reclamation fund?

Mr. STABLER. That is correct. The total and relative costs to the several producing States, by fiscal years of the 5 percent royalty provision of section 14 is shown by table 2 and chart 2. California, Montana, New Mexico, Wyoming, and Colorado, in the order named, are the principal losers to date, though the current order of losses is California, New Mexico, Wyoming, Colorado, and Montana. The discovery of new fields and changing rates of production will change the order from time to time.

Chart no. 3 shows, for Montana as an example, the relation of losses to royalty accruals from public lands, and oil and gas revenues from State lands, and suggests that the State's income from oil and gas operations on Federal land would have been more than doubled, had there been no provision for the 5-percent leases in section 14 of the leasing law, and that the State's income is of the order of magnitude from oil and gas operations on State and on Federal land, where the entire royalty goes into the State treasury, and from Federal lands where little more than one-third of the royalty goes into the State treasury.

That concludes my statement.

The CHAIRMAN. That concludes your statement?

Mr. STABLER. Yes.

The CHAIRMAN. I have a request for witnesses from Mr. Disney, of Oklahoma.

Mr. Greever, have you any special witnesses?

Mr. Disney, of Oklahoma, had requested time this morning for Mr. Tolman, of Oklahoma, and Mr. Bell, unless you have some, as the introducer of this bill, Mr. Greever.

Mr. GREEVER. No; I do not think there are any here from Wyoming. Mir. Jackson is here from Montana.

The CHAIRMAN. On the Rocky Mountain Conservation Board of the State of Montana. I have their memorandum here. Is there any one here representing the Mid-Continent Oil Association?

Mr. TOLMAN. We represent the Mid-Continent Oil & Gas Association.

The CHAIRMAN. I have a statement sent to me here by these people, which, at this time, I will offer for the record, and if Mr. Tolman is present, we will be glad to give him an opportunity to be heard.

Firstly, perhaps I should make this statement, or request that the witnesses briefly touch on the salient points in their briefs, because I do not think we will be able to read all of the briefs that may be filed, or letters and so on, which is customary in all committees. We would like you to make it as brief as possible, touching upon the salient points, as I say, that the witnesses desire to put into the record, and then file your brief, whatever it may be.

(The matter referred to is as follows:)

Hon. RENÉ L. DEROUEN,

Chairman House Committee on Public Lands,

TULSA, OKLA., April 10, 1935.

Washington, D. C.

MY DEAR SIR: At a meeting of the General Board of Directors of Mid-Continent Oil & Gas Association held at the office of the association at Tulsa, Okla., on Saturday, April 5, 1935, the board after due consideration of Senate bill 1772 and House bill 5530 (identical bills), for the amendment of the Oil Leasing Act of February 25, 1920 (41 Stat. 437), authorizing the undersigned, as secretary of of the association, to transmit to your committee and also to the Senate Committee on Public Lands and Surveys, the following statement of the views and position of the association with respect to said bills.

Mid-Continent Oil & Gas Association is a trade organization representing all branches of the oil industry in the midcontinent area. A considerable number of the members of the association are directly interested in oil development and production on the public lands, and the entire association is interested in procuring reasonable and practicable laws on behalf of members who are or may be interested and on behalf of the industry generally.

Though at the time of the passing of said leasing act there was no little controversy and difference of opinion over the advisability of legislation which contemplated permanent ownership by the United States Government of lands within the States, we are of the opinion that, the leasing policy having been decided upon, said leasing act, speaking generally, has worked out as satisfactorily as could be expected. Under it large sums have been expended for exploration on the public domain. The original act, the amendments thereto and the various extension acts that have been passed, have made this legislation sufficiently elastic to enable the Department of the Interior to require or to defer development and production on the public lands in line with the rapidly changing conditions in the oil business during the last few years. At the outset, therefore, we are disposed to question the advisability or the necessity of such radical changes in the policy of the Government as represented by existing laws and departmental practice, as are proposed by these bills. In the absence of quite material amendments, we are of the opinion that it is preferable to continue under the present laws and the departmental practice heretofore prevailing, supplemented by further reasonable extension acts from time to time as needed, and the elimination from existing laws of certain restrictions and limitations of acreage holdings, which, we believe, have been found wholly unnecessary.

Assuming, however, that this bill is to be regarded as an administration measure which will be pressed for enactment, it is our considered opinion that the bill should be amended, at least in the following respects:

1. If the granting of permits and extensions is to be discontinued, and particularly in view of the policy that has been followed in the past with respect to extensions, we regard it as altogether necessary that provision be made in the bill for an automatic extension of time of not less than 2 years on all outstanding permits, to give permittees and operators a reasonable opportunity to adjust themselves to the policy of more active drilling and development, which is apparently contemplated as a result of this bill; otherwise it is not unlikely that many permittees or the holders of operating rights on permits may be deprived of any possible benefit from their previous efforts and expenditures.

2. Relative to the proposed leases which are to be exchanged for permits, we think such leases should in all fairness be on such terms and conditions as to confirm to the permittee substantially the same rights now held under permit. Under existing law and regulation the permittee on discovery is entitled to a lease on one-fourth of the area of his permit at 5 percent, and on the balance of the area at not less than 122 percent; therefore, we think that leases given in exchange for permits should be on substantially the same basis. If this is not done, great confusion and possible loss will result by reason of existing contracts between permittees and operators whereby royalties are reserved on the production from the 5 percent acreage.

3. Relative to the new forms of leases that are to be granted under section 17, we see no objection to the plan of selling leases on proven lands by competitive bidding, preferably at public auction. As to unproven lands, the bill provides for the sale of leases, and also apparently provides for the granting of leases on mere application, to any qualified applicant. The latter would appear more consistent with the long established policy of the mining laws applicable to the public lands.

4. As to the royalties to be paid the Government on production from leases issued under said section 17, we are convinced that such royalties should not exceed 121⁄2 percent, the prevailing royalty in commercial, private-land leases. Experience has demonstrated that a fixed charge in the form of a higher royalty is, in the long run, an uneconomic burden on the operator and conductive to premature abandonment. Moreover, as to leases disposed of by competitive bidding, any additional consideration to which the Government is entitled will be covered by the bonus paid for the lease.

5. It is noted particularly that there is no provision in the bill as to the drilling terms and conditions to be provided in the leases to be granted under section 17. We think it highly important, particularly in view of present conditions in the oil industry, that very liberal requirements as to drilling be specified in the bill, or that definite provision be contained in the lease for the deferment of drilling during the fixed term of the lease on the payment of a fair rental. On unproven lands any such rentals should be very low, so as to enable the prospector with small means to acquire leases.

6. Relative to the acreage limitations of section 27 of the leasing act, which, as the bill now stands, would apply to leases granted under section 17, we are convinced that such acreage limitations should be entirely eliminated. These restrictions simply impede the progress of development by preventing a single party or group from acquiring all or sufficient of the acreage on a wildcat structure or prospective field to warrant the heavy expenditure required for test wells, or unduly restrict and limit the operation of those who are engaged in exploration and production on the public lands. It should be borne in mind that only a small percentage of the leases granted, can be expected to become productive. In the case of Indian leases in Oklahoma, there was formerly a restriction on acreage holdings; it was found unsatisfactory and was removed at the instance of the Indian councils; no monopoly has resulted and the Indians have had a better market for their leases.

7. Relative to the provisions in section 17 of the bill for the inclusion of leases granted under said section, in unit development contracts, this association has consistently favored unit development and operation wherever feasible; but we think this matter should be left entirely under and subject to the existing provisions of sections 17 and 27 of the act as amended March 4, 1931 (46 Stat. 1523), with no requirement to enter into a unit development contract regardless of whether same is practical.

8. Subject to the foregoing, in the interest of both the Government and the oil industry, we believe that Government leases should be on substantially the same

terms and conditions as commercial leases; this adds to the value of the Government leases, and renders more practicable the handling and operation of Government and private lease acreage in the same field or pool.

In the deliberations of your committee on this bill, may we urge serious consideration of the suggestions herein submitted, as coming from those who, though directly and vitally interested in the welfare of the oil industry, are not unmindful of the public interest involved.

Respectfully,

MID-CONTINENT OIL & GAS ASSOCIATION, By CLAREL B. MAPES, Secretary.

The CHAIRMAN. If it is agreeable, we will call on Mr. Tolman, and suppose we say 10 minutes, or less time. Will that be agreeable to you?

Mr. TOLMAN. I agree that Mr. Patterson should go first. Mr. Patterson, of California, wants a few minutes.

The CHAIRMAN. Yes; I have him down here.

Mr. TOLMAN. If it is agreeable to the chairman, I think Mr. Patterson should go on now.

The CHAIRMAN. It does not matter to me. I have Mr. Patterson on my list. Mr. Patterson is the representaive of the State of California, and I have a letter from the Governor, also, this morning, which requests that Hon. Robert L. Patterson, a former member of the California Legislature, appear in their behalf. So Mr. Patterson, if you are ready, we will hear you and give you, say, 8 or 10 minutes, or ask you to make it as brief as possible.

STATEMENT OF ROBERT L. PATTERSON, OF CALIFORNIA

Mr. PATTERSON. Mr. Chairman and gentlemen of the committee, as has been indicated, California, with its sister State of Wyoming, is one of the States that are most vitally at interest from a financial standpoint.

As was explained yesterday the State of California has 40 plus percent of the known oil reserves in the United States. It has been told me by geologists in California, and by the oil umpire's office, that 30 percent of the known reserves in California underlie the public domain. So that if there are approximately 5,000,000,000 barrels in the reserves, there are some 1,500,000,000 barrels of the unmined oil still in the public domain in California.

The interest to which I speak is particularly that of the State's financial interest, and there are two things that I hope this bill will definitely take care of, and that is the matter of the revenues accruing to the States and to the Bureau of Reclamation; and, furthermore, that the leases be extended to the life of production.

All of the leases, or practically all of the leases as universal custom in the oil industry, on private property, are to make leases for the life of production. Leases for 20 years, with the privilege of renewal are not satisfactory to the State of California nor its political subdivisions, because it is very difficult to properly assess or tax the possessary rights, when the term is as short as it is under the mineral leasing act. Leases in California, which were made in 1920, after the passage of this act, have not very much longer before they expire. There are a group of those leases in California that have produced the greatest amount of royalty, that expire as to their first 20-year period between 1940 and 1942. A department of the United States Government

has said that, if it is legally possible--and if not legally possible now, that a bill will be introduced making it legal, and terminate those leases at the end of the 20-year period.

Underlying those leases in the Buena Vista Hills field of California, geologists estimate that the Kettleman sands underlie those properties. The operators who have those leases are adequately financed, mostly independent companies, but if they felt they could not get their oil out before the termination of their leases, they would, in self-preservation, have to produce from the lower sands and bring in another flush pool, which neither they nor the other operators in California, the State of California, or the Federal Government, I am sure, desire, particularly at this time of flush production.

I am going to quote from an article which I wrote and which appeared in the last annual report of the National Reclamation Association. It contains in it a map to which I wish to refer, and also a resolution that has to do with section 35 of the act. That section is not amended in this bill. So I present to your committee, at this time, a suggested amendment to section 35, with a request that the committee consider the adoption of that amendment to this bill. The CHAIRMAN. As to section 35?

Mr. PATTERSON. Section 35. The present act provides that 10 percent of all the money received from sales, bonuses, royalties, and rentals under the provisions of this act, excepting those from Alaska, shall be paid into the Treasury of the United States and credited to miscellaneous receipts; for past production 70 percent and for future production 52%1⁄2 percent of the amounts derived from such bonuses, royalties, and rentals shall be paid into, reserved, and appropriated as a part of the reclamation fund created by the act of Congress, known as the Reclamation Act, approved June 17, 1902, and for past production 20 percent, and future production 371⁄2 percent of the amounts derived from such bonuses, royalties, and rentals shall be paid by the Secretary of the Treasury after the expiration of each fiscal year to the State within the boundaries of which the leased lands or deposits are or were located, and said moneys to be used by such State or subdivisions thereof for the construction and maintenance of public roads or for the support of public schools or other public educational institutions, as the legislature of the State may direct; provided, that all moneys which may accrue to the United States under the provisions of this act from lands within the naval petroleum reserves shall be deposited in the Treasury as miscellaneous receipts.

For the past 8 years I have made, from time to time, a diligent and careful study of the history of this leasing act. The distinguished Senator from California, Hon. Hiram W. Johnson, introduced me to the librarian of the United States Senate, with the request that he supply me with the records, the Congressional Record and committee hearings from 1909 up until the time, in 1932, when I asked for that information. I have read diligently, as I say, those congressional reports. I have read diligently the hearings before the various committees, and I do not find, in any of those hearings, or discussion upon the floor, the theory or reason why the moneys derived from the naval petroleum reserves should be deposited in the general fund of the United States. The only theory that I can ascribe to that is,

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