AMENDING THE OIL AND GAS LEASING ACT OF 1920 MONDAY, APRIL 22, 1935 HOUSE OF REPRESENTATIVES, Washington, D. C. The committee met at 10 a. m., Hon. J. Will Robinson presiding. Mr. ROBINSON. I understand that Mr. Steele wishes to be heard this morning. While we do not have a full membership present this morning. I will say to you, Mr. Steele, that this record will be printed and will be available not only to the members of the committee but to all the Members of Congress and the public before action is taken on the bill. STATEMENT OF J. W. STEELE, FORMER SUPERVISOR, CONSERVATION BRANCH, GEOLOGICAL SURVEY Mr. STEELE. Mr. Chairman and members of the committee, I am here this morning at the request of Congressman Greever, and I am appearing before you as a former supervisor under the conservation branch of the Geological Survey. I have prepared no written statement, but will refer to some notes. For that reason my talk may be rambling and disconnected and possibly at times borsome to you, The ideas I will express are my own personal ideas. They are not dictated to me by anyone, and they are not binding on any other jærson, company, or association. I may be at times in disagreement with both the administrative forces and the representatives of the vil industry. My connection with the oil industry commenced in 1913 in the midcontinent area, where I was a experintendent, a roustabout tod dresser or driller's helper, if you like, and a tool pusher. After the war I moved to the Rocky Mountain area, where I asteri as experintendent of operators for two olj gompanies interested in the sex upment of of and gas lande. Incidental to that there was protuum. transportation, and redning vsirites. I: 2922 I was employed by the United States Bureau of Mines, which an that time had supervision of the deseopment of q. 210 mder the Leasing Aut of 20% My tie ten wis enior petroleu eren. In 1925 those aittirines of the Bureau of Mines were taxes OTH T Tat k or the museus trace of the United at Gedionel Surrey, and at the time I va made amerroor of gen tone in the BOTT Monatla States Early in 164 I was ass ge The Gangal Sorter to the Innermantonal Commission la Colema ba. Sok Arena Mr Site there were those of subapa, super TIME, UL MEU tuning driver. I vera IT MEJOR V Geological Survey in 1929 to go to Africa in the production development of a large concession in a Portuguese colony on the West Coast. That work was stopped in 1932, mainly because of the depression, and I returned to the conservation branch of the Geological Survey as a supervisor at Roswell, N. Mex. I was promoted from that job and brought to Washington as chairman of the technical advisory committee of the Petroleum Administrative Board. I held that position for a year and was then transferred to the planning and coordinating committee of the oil industry. I have gone into some detail here in order to qualify myself and in an endeavor to show that I should have some little knowledge of the practical producing problems from the industry's side and also some slight knowledge of the administrative problems from the Government's side in connection with the leasing of public lands. Mr. Greever has asked me to discuss his proposed bill, and I will attempt to do so in my own way. However, it may be necessary for me to walk around the block in order to get next door, and so I hope you will have a little patience with me. Mr. ROBINSON. Go right at it in your own way, and take whatever time you think is necessary. Mr. STEELE. I think it was on the first day of these hearings that a letter from the Secretary of the Interior was read to this committee. I do not have a copy of that letter, but I think there were two statements made in it with which I am not in accord. One was, roughly, to the effect that the present leasing act, or the so-called "Leasing Act of 1920", had been a miserable failure. I am not trying to quote the exact language of the letter, but that was the impression I received from the reading of the letter. The other statement was to the effect that this bill was trying to wipe out, we will say, a practice which was bad, and convert it into a system which would place Federal lands, or the leasing of Federal lands, on an equality with the leasing of private lands. I will refer to that point a little later. You have been told by many of those who have appeared before you, and I think it is admitted freely, that the intent of Congress which passed the Mineral Leasing Act of 1920 was to convert from a system under which the citizen of the United States under certain conditions could obtain a fee to mineral lands, and, particularly, to prospective oil lands. That bill required careful consideration over a number of years, and at the time it was passed it was undoubtedly the intention of the Congress that the average citizen of the United States should have an opportunity to go out and participate in the possible benefits to be derived from the wildcat lands of the United States. The royalty was intentially placed low on one-quarter of the land. Congress said that the royalty on the other three-fourths of the land should be not less than 1212 percent. Now, we have no quarrel with the figures submitted by Mr. Stabler in his effort to sustain the Secretary's statement or belief that the Leasing Act has been a failure, but I do contend that those same figures can be so presented that you will obtain a much different picture of the actual situation. Congress had in mind a royalty of 122 percent on a certain amount of the leased land. Now, assuming that, under the Leasing Act, the so-called "A" and "B" leases had been equally productive, I think you will find that it was the intention of Congress, or that what Congress was apparently satisfied should be obtained, was an average combined royalty of not over 10.6 percent. The Department saw fit, under its discretionary power, to construe the minimum of 122 percent on the "B" lease into a royalty of 122 percent and on up, on a sliding scale; so that the average royalty, as I remember the figures as given by Mr. Stabler, was something like 14 percent. Is that correct, or was it 12 percent? Mr. STABLER. It was between 14 and 15, on the sliding-scale lease; so the average was 11.2 percent. Mr. STEELE. Thank you. So that, under this act, the average royalty obtained for the combined leases has been greater than the Congress which passed the act would have been agreeable to. Now, that is not all the story: Under the discretionary right of the Secretary of the Interior, there were periods when drilling was not only discouraged but the actual issuance of "B" leases was stopped. It would be well for you to consider just what that means. Drilling on "A" leases was not stopped during that period. Mr. GREEVER. I think you had better explain for the benefit of the committee what "A" and "B" leases are. Mr. STEELE. An "A" lease is the reward for discovery, which amounts to one-fourth of the acreage under the permit, at 5-percent royalty. A "B" lease covers three-fourths of the remaining portion of the acreage under the permit, which carries a royalty of from 1212 percent to 25 percent, or, in some cases, from 1212 percent to 3313 percent. Mr. STUBBS. The "A" lease has been discouraged, or development under the "A" lease has been discouraged by the Secretary's order, has it not? Mr. STEELE. Development on the permits has been. Mr. STUBBS. Under "A" leases. Mr. STEELE. On the "A" and "B" leases. The drilling takes place, and then, after discovery is made, the acreage is segregated, and leases are issued on the two portions. That is only when discovery is made. Now, it has been the policy of the Department at certain times to discourage drilling on permits for which leases may issue eventually, by granting an extension of time on the permit, conditional on no drilling being done the first year, for instance. I do not have available, or readily available, the B form of lease. Mr. Stabler may be willing to help me on that. However, by the sliding scale of royalty is meant this, that if the lessee is fortunate in obtaining a production, say, of 200 barrels of oil, or he has a well that yields a production of 200 barrels, the first bracket there is from 1 to 20 barrels, at 122-percent royalty. In other words, of that 200 barrels, the first 20 barrels pay a royalty of 1212 percent. Then from 20 to 50 barrels, or, in effect, from the twenty-first barrel up to the fiftieth barrel, you set aside 1623 percent for royalty. Then from the fifty-first barrel up to the one hundredth barrel that you set aside, there is carried a royalty of 20 percent. From the one hundredth barrel to the two hundredth barrel, the royalty is 25 percent, and then for anything over that the royalty is 33% percent. Therefore, the higher the productivity of your well, the more will be the average royalty, until it may reach a rate of 33% percent on the entire production. Therefore, when we are talking of a 1212 percent royalty under the Greever bill, it has not been pointed out clearly that it is not 122 percent, but it is a minimum of 121/ cent, if the Department should follow the procedure by which this percentage has been established. Then, we might have a sliding scale,. but there is nothing in the Greever bill to stop a flat 25 percent, or any other royalty between 122 percent and 25 percent that the Secretary may see fit to establish. Assuming that they follow the practice that has been established, then there is nothing in the Greever bill to stop them from changing those brackets from 20 barrels down to 10 barrels for the first grouping of the royalty. Therefore what is set out in the Greever bill is very indefinite, but it is left almost entirely to the discretion of the Secretary of the Interior, whether it is so stated or not. I have digressed from the original story I started out with. Mr. WHITE. Then, is it your understanding that there is nothing in the Greever bill to protect the permittee or lessee in retaining the same royalty, based as it is now under the law? Do I understand you to say that there is nothing in the Greever bill to protect him in that respect? In other words, if the Secretary of the Interior is arbitrary in requiring a higher limit, the permittee will have no protection from any court. Mr. STEELE. Insofar as I am able to read this bill, I would say no. However, I want it distinctly understood that I have no knowledge of the law, and I am talking from the engineer's standpoint. As I read the Greever bill, I can see no curb on the Secretary of the Interior that would prevent him from establishing any sort of a royalty between 122 percent and 25 percent, that he may see fit to establish. I may be wrong about that, but that is my impression. Mr. ROBINSON. Then, so far as the old law is concerned, this is just the same as the old law, is it not? It is the same as the old law so far as the discretionary power of the Secretary is concerned, is it not? Mr. STEELE. Yes, sir; it is the same thing. As I have already pointed out, the old law set a minimum of 1212 percent, whereas the actual royalty was set at something above that. I am not criticizing that. I think the power there was in the law. Mr. ROBINSON. That is the point I wanted to make clear. Mr. GREEVER. If there is no less power given in this bill in that respect than in the old law, it would run from 122 percent to 33% percent, instead of running from 122 percent to 25 percent. Mr. STEELE. Do you mean the top limit? I am rambling along ahead of my story, and I meant to bring that up in connection with another point later. Mr. ROBINSON. On that point, as I understand it, under the old bill, the Secretary had discretion up to 3313 percent. Mr. STELE. Under this bill the Secretary's discretion is limited to 25 percent. Mr. GREEVER. That is my understanding. Mr. ROBINSON. Its effect, so far as the discretion of the Secretary is concerned, is the same as in the old bill under which we are now operating. Mr. STEELE. As I remember it, although I have not referred to the Leasing Act for a number of years, the original Leasing Act says nothing about 33% percent. Is that right, Mr. Stabler? Mr. STABLER. That is true as to the upper limit. |