the oil and gas deposits and structures of the public domain. I wish to emphasize, however, that the suggested amendment is rcommended only for incorporation in H. R. 5530 and S. 1772 and not for enactment as separate legislation If the existing permit system is not changed to the proposed lease system, I must recommend strongly against any bill providing for an extension of oil and gas prospecting permits except in the discretion of the Secretary of the Interior.

I recommend that H. R. 7573 be not enacted.
Sincerely yours,

HAROLD L. ICKES, Secretary of the Interior.

Mr. POOLE. Mr. Chairman, I would like to make a brief statement as to the effect of this amendment.

Mr. ROBINSON. You may proceed.

Mr. POOLE. The amendment which the Secretary has recommended be incorporated in Congressman Greever's bill is more liberal as an extension act than any which Congress has ever passed heretofore, and in effect deprives the Secretary of the Interior of any discretion as to the extension of permits that have heretofore been extended and are not canceled on May 1 of this year. That is, the law itself, or the amendment itself, if enacted into law, will have that effect. And it in substance will permit three drilling seasons for the permittee to get into position to come under this new leasing system, which we think is very liberal.

If there are no questions, that is all I have.

Mr. ROBINSON. Any questions of Mr. Poole?

Mr. DIMOND. Mr. Poole, before this is concluded I would like to ask you a question about the Alaska oil proviso in the old bill, in order that it may be carried forward here. Shall I proceed now or wait until another time?

Mr. ROBINSON. Yes; you may proceed now.

Mr. DIMOND. Mr. Poole, I do not know whether you are very familiar with the Alaska oil proviso appearing in the original bill, but there is only one paragraph to which I wish to refer now, and that is the paragraph or proviso which reads as follows, found on page 11 of the compilation of various laws concerning oil lands, which was furnished here [reading]:

Provided, That leases in Alaska under this act, whether as a result of prospective pools or otherwise, shall be upon such rental and royalty as shall be fixed by the Secretary of the Interior, and provided in the lease it be subject to readjustment at the end of each 20-year period of the lease. Provided further, That for the purpose of encouraging the production of petroleum products in Alaska, the Secretary may, in his discretion, waive the payment of any rental or royalty not exceeding the first 5 years of any lease. Mr. MOTT. What section?

Mr. POOLE. 22.

Mr. DIMOND. That is not touched upon or amended by the bill. It seems to amend sections 13, 14, 17, and 28 of the act of 1920. Is it your opinion that the special proviso concerning oil lands in Alaska would be repealed?

Mr. POOLE. Absolutely not, Delegate.

Mr. DIMOND. Absolutely not?

Mr. POOLE. No. We considered that and decided that that provision should continue, and that will have the effect of authorizing the Secretary to make special provision of oil development.

Mr. DIMOND. May I ask one further question? Would the limitation of 640 acres in the paragraph before that also apply in Alaska, if this bill is passed?

Mr. POOLE. That is not changed, Delegate. That 640-acre limitation addresses itself only to the size of the unit which is being offered for sale in the lease. That is a continuation of the present law.

Mr. DIMOND. Then Alaska would not be affected, the special provision concerning Alaska in the act of 1920 would not be affected by this bill?

Mr. POOLE. It is not affected.

Mr. AYERS. Mr. Chairman, it is getting close to adjournment time, but I want to get something clear on the report on 7573. In the Secretary's report on that, he says, in substance, that a man can, with that extension, go in and drill and disregard drilling rules. That is a fact in the report?

Mr. POOLE. I beg your pardon.

Mr. MOTT. Under whose bill?

Mr. AYERS. Under 7573.

Mr. POOLE. I do not follow the Congressman.

Mr. AYRES. In your reading of this, I got it that the Secretary advises against the enactment of it for the reason that under it a man can go in and drill and disregard the drilling rules.

Mr. POOLE. That is correct.

Mr. AYERS. It simply continues the present permit for a period of 2 years, and does not a man have to put up a bond of $5,000 before he can even spud in, that he will regard all drilling rules, and this continues that law, or do you repeal it in any way?

Mr. POOLE. Congressman, the effect of your bill, as we understand it, would be to extend all permits.

Mr. AYERS. In their present status?

Mr. POOLE. On those upon which the Department has made an appraisal of outstanding equities. That is, every time we make an extension we examine the permit to determine the equities and consider whether or not he has complied with the law and with the regulations.

Mr. AYERS. Yes, sir.

Mr. POOLE. As I underderstand your bill, it would extend all outstanding permits for this period of time.

Mr. AYERS. Under existing law. Is that not right? And under existing law he has got to put up a $5,000 bond before he can obtain it to show that he will comply with all the rules and regulations promulgated by the Interior Department?

Mr. POOLE. Congressman, would not this be the effect of that: Supposing that he had violated the law in the past———

Mr. AYERS. The Department should have canceled his permit if he had violated the law in the past.

Mr. POOLE. Would not the effect of your bill be to give him an extension by law, regardless of what he had done?

Mr. AYERS. Certainly; and we are going to assume that the Secretary lived up to the law of record, and if he did violate it before his permit is canceled.

Mr. MOTT. What is your objection now, in view of this amendment, to that method of extension?

Mr. AYERS. I have not studied that method of extension. I cannot say I agree with it. However, temporarily, it tides us over for the 60 days.

Mr. ENGLEBRIGHT. You mean the executive order of the Secretary of the Interior?

Mr. MOTT. No; I mean the suggested amendments by the Secretary for H. R. 5530, which make the extension up to about the same date.

Mr. AYRES. Six months elapses under different rules.

Mr. MOTT. If we agree that the rules and regulations and conditions under which permittees are to operate are right, we think they should operate under those conditions and be under the conditions read by Mr. White here a minute ago-I cannot see why the extension proposed by the Secretary is not just as effective as the one you propose in your bill, H. R. 7573.

Mr. AYRES. It may be, after we study it.

Mr. MOTT. It may sound rather liberal, coming from me, but I am rather inclined to believe that this is one of the infrequent times when the Secretary of the Interior's Office is proceeding with a sound proposition, and I think that this is a case here where they are handling something in connection with which they really have exclusive jurisdiction. We have had propositions before us here where they were interfering with the jurisdiction of everybody else, but I consider that here they are on the right track.

Mr. AYRES. My idea is to get the report straightened out as to what they really meant by the report, and really what is the fact that the bill H. R. 7573 only extends the permit, and they must furnish bond during that extension and must operate under the existing law which requires a $5,000 bond, and all rules would be lived up to. I think we have agreed on that.

Mr. ENGLEBRIGHT. You do not believe that your bill is necessary, Mr. Ayers?

Mr. AYERS. I am not saying my bill is not necessary. I have not studied their proposed amendment.

Mr. MOTT. We cannot go any further on it now.

The CHAIRMAN. We are going to adjourn in just a minute. Mr.

White.

Mr. WHITE. Because of what the Congressmen from Oregon and Montana have said, it is my understanding that there is a very material difference in the operation of the two measures. One is extended on a certain condition, that they enter into a unit rule, and one is just to give them an extension as is.

Mr. MOTT. That is not quite what I meant. What I asked Mr. Ayers is, whether the extension proposed by amendment as recommended by the Secretary would not fulfil all of the results that he wanted.

Mr. WHITE. The extension carries a condition that they will enter into certain stipulations and agreement proposed by the Secretary of the Interior.

Mr. POOLE. No, Congressman; the proposed amendment of the Interior Department makes no statement about unitization or necessitates such a requirement. We think, inasmuch as all these previous conditions which have been made have been conditioned upon unitization that that will continue.

Mr. WHITE. What will continue?

Mr. POOLE. The stipulation that they would enter into such an agreement.

Mr. WHITE. But this continuation of the Secretary gives him discretion.

Mr. ENGLEBRIGHT. You are speaking of the Executive order now, and not the amendment which has been proposed?

Mr. POOLE. The amendment does not so state.

Mr. GREEVER. May I ask Mr. Poole one question before we adjourn, which I want him to think over a little bit?

Mr. ROBINSON. Mr. Greever.

Mr. GREEVER. It just occurred to me that there should be somewhere there in that amendment a little flexibility in the interest of conservation.

Mr. ROBINSON. We might consider that. We are going to adjourn and leave the hearing just as it is, and reopen it when the Senate has finished its hearing.

So that we will now adjourn subject to call on this particular

matter.

(Whereupon, at 11:55 a. m., the hearing was adjourned subject to call of the Chair.)

DEPARTMENT OF THE NAVY,

OFFICE OF THE SECRETARY,
Washington, May 23, 1935.

The CHAIRMAN COMMITTEE ON THE PUBLIC LANDS,

House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN: Having noted the introduction of the bill (H. R. 5530) relative to amending section 35 of the so-called "Leasing Act" of February 25, 1920, and having read the committee's report on this bill, I beg to inform you that I am unalterably opposed to the amendment as proposed. I am of the opinion that section 35 should continue in force as at present worded. The existing language was adopted by the Congress after mature deliberation, and I know of no valid reason why any change therein should be made now.

As you, of course, know, the naval petroleum reserves were set aside by Executive orders "for the exclusive use and benefit of the United States Navy until this order" (orders) "is revoked by the President or by acts of Congress." You are also aware of the national scandal and disgrace which was precipitated when a former administration attempted to alienate from the Navy Department the control and jurisdiction of these reserves. It was only after years of litigation and at thousands of dollars of expense that this control and jurisdiction was restored to its rightful lodgment in the Navy Department; in fact, the litigation is not yet ended. Since the establishment of the reserves the Navy Department has had to be constantly on the alert to prevent selfish interests intent on personal advantage or gain from divesting the Navy of its indispensable fuel reserves.

In view of these facts alone, I feel that the Congress will proceed very slowly on any course of action which would tend to divorce the Navy Department from handling these reserves. Hardly a year passes but some effort is made to remove the Navy Department from control of the reserves. For the last 2 or 3 years these efforts took the form of having the control transferred to the Interior Department. If this had been done the Interior Department would of necessity have had to open up the reserves for immediate and complete development and exploitation. All of these efforts I have opposed in the past, and I will continue so to do.

I cannot but feel that the present attempt to amend section 35 is but the entering wedge to bring about the exploitation of the reserves. It is the policy of the Navy Department to try to keep in the ground as much oil as possible. If the proposed change is made in section 35, constant pressure will be exerted to force the Navy Department to produce as much oil as possible

so that the royalty proceeds will be increased and thus defeat the very purpose for which the reserves were set aside.

In addition to the general objections outlined above, I would add the following specific objections to the proposed amending of section 35:

(a) There is a possibility that the royalty production from the reserves may be applied to the purchase of privately owned sections in reserve no. 1 in California. A bill, H. R. 4756, introduced January 25, 1935, has a clause which would authorize the Secretary of the Navy to exchange Government land in reserve no. 1 and the right to royalty production from any of the naval petroleum reserves for privately owned land in reserve no. 1 in order to consolidate and protect the oil lands owned by the Government, with provisos that no exchange shall be made except with the approval of the President. This bill has not been pressed on account of pending controveries concerning title to some of the lands now held by private parties in reserve no. 1, and on account of other activities of the House Naval Committee, but if it is passed it is manifest that the production receipts from the reserves would be utilized for conserving the Navy's oil resources in the ground.

(b) The Standard Oil Co. of California holds several sections of lands in naval petroleum reserve no. 1 and if they should start drilling these lands, there are 16 miles of boundary line in the productive part of the field that will require offset drilling on the part of the Government. Provision for such drilling, if necessary, has been made in all the annual naval appropriation bills since 1931. The large sums that would be required would not be a direct drain on the Treasury as long as the receipts from the existing leases are covered into the Treasury.

(c) Considerable sums are required for repairs to wells in naval petroleum reserve no. 1, California, and naval petroleum reserve no. 3, Wyoming, in order to keep them in the best condition possible until they may be called upon for production. The amounts turned in to the Treasury far exceed the cost of the repairs and upkeep of the reserves, and thus the income from the reserves directly benefits the National Government in the form of miscellaneous receipts. (d) At the present time the receipts from the reserves are covered into the Treasury of the United States in accordance with section 35 of the act of February 25, 1920, and have averaged $1,600,000 per year since 1926. Present receipts, however are considerably lower than this average an account of restricted and controlled production and decreased prices.

In view of the fact that these reserves are not "public lands", but are set aside for a specific purpose, I know of no reason why these receipts should not be covered into the Treasury as "Miscellaneous receipts." While it is not specifically my affair, I wish to point out that there is doubt whether it is wise for the Nation to diminish its miscellaneous receipts in order to build up special funds. It would seem better accounting procedure to have all such receipts covered into the Treasury and subsequently appropriated as desired by the Congress. As proposed by the amendment of section 35, approximately $29,000,000 will be deducted from miscellaneous receipts and credited, 70 percent to the "Reclamation fund" and 20 percent to the State within which the reserves are located for past production.

While you have not asked for comment on other features of S. 1772 or its companion bill, H. R. 5530, I wish to point out certain other objectionable provisions contained therein, as follows:

1. On page 8, lines 17 and 18, S. 1772, it is stated "leases issued prior to July 1, 1935, under the authority of this act shall continue for a period of 20 years", etc. This is very objectionable, because it apparently continues these leases for a period of 20 years from the date of the passage of S. 1772. To this I am strongly opposed.

Some of the leases in the reserves will expire in 1941 and 1942 upon the expiration of the first 20-year period. While it may be found desirable or even necessary at that time to extend some of these leases, it is certain that some of them should not be renewed for conservation reasons, and it is felt that conditions that exist at the date of expiration of the leases should govern the actions of the Secretary of the Navy at that time.

2. On page 10, lines 1 to 20, inclusive, and on page 13, lines 3 to 11, inclusive, section 2 (a), authority is granted to the Secretary of the Interior to perform certain acts under certain specified conditions. There is no objection to these provisions so far as they apply to public lands, but they should not apply to the lands within the naval petroleum reserves.