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. D'EMPSEY. How would you determine the entire pool?

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

Mr. DEMPSEY. 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?

Mr. STABLER. As those things are worked out, some arbitrary limit is fixed, some guess is made as to the limits of the pool, and the proration over that area is made until further exploration determines the limits.

Under some of the plans that have been adopted, after a final determination of the limits, there is a readjustment of all interests, so that each actual owner of the entire pool gets, as of the beginning, his entire share, or his entire reduced share.

The CHAIRMAN. Mr. Ayers.

Mr. AYERS. I think there is a misapprehension here. In answer to the first question by the member from Idaho, you say it is not the purpose of this law or amendment that the first well drilled to production and actually produces that the production coming from that will be distributed out among everyone in that particular structure?

Mr. STABLER. This law, of itself, does not touch on that question. Mr. AYERS. That is what I thought, but your first answer would indicate his question was, would the others participate in what we call the discovery well. No one participates in that well except the person who drilled the well. The only way the other fellows can protect themselves is to offset it.

Mr. WHITE. Under the unit plan, as I understand it, the several owners in an existing pool would participate, would they not?

Mr. STABLER. Under the unit plan they would; yes.

Mr. AYERS. But there is no idea of unit plan by these amendments, is there?

Mr. STABLER. These amendments extend the idea of unitization further than it has been extended before. My answer to the question was addressed to the question of unitization, rather than the application of that principle in the proposed amendment.

Mr. CRAWFORD. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Crawford.

Mr. CRAWFORD. Mr. Stabler, the adaptation or adoption of the unit plan, as I understand your statement, would tend to prevent a great deal of the so-called "production of hot oil"- because it would let a man, the owner of a little tract of land refrain from drilling, in order to protect himself from drilling there, knowing that he would be fully protected after the field was actually determined, whether he drilled or not; and would tend to prevent the excess production of oil at a time when there was a great amount of so-called "hot oil"? Mr. STABLER. That is true. The authority for permittees and lessees to enter into cooperative or unit plans of operation, with the approval of the Secretary of the Interior, was granted by Congress in the act of July 3, 1930, and subsequently by the act of March 4, 1931.

The Department has notified the Congress, in conformity with these acts, that 59 leases have been extended for the duration of the plan, under seven such plans that have been approved.

About July 1, 1931, the parties in interest in the group development plans were invited to submit unit plans, and in a few cases extensions were made, contingent on filing cooperative or unit plans when required by the Secretary.

On April 4, 1932, regulations were adopted renewing the issuance of prospecting permits, but occasioned on the submission of cooperative or unit plans, and on production under such plan.