verbal, or otherwise to which such lessee shall be a party, of which his or its output is to be or become the subject, to control the price or prices thereof or of any holding of such lands by any individual, partnership, association, corporation, or control, in excess of the amounts of lands provided in this act, the lease thereof shall be forfeited by appropriate court proceedings.

Add at the end of the bill a new section, as follows:

SEC. 2. The amendments herein adopted to sections 17 and 27 of the general leasing act of February 25, 1920, as amended, shall expire at midnight of the 31st day of January, 1931.

Amend the title so as to read:

A bill to amend sections 17 and 27 of the general leasing act of February 25 1920 (41 Stat. 437; U. S. C., title 30, sec. 226), as amended.

This legislation was requested by the Secretary of the Interior and is essential for meeting an emergency. The Government is a large owner in the Kettleman Hills oil and gas field in California, where the present waste of natural gas reaches the daily total of 400,000,000 feet, even under a temporary agreement which limits the number of active wells. A cooperative plan for meeting this waste problem more effectively is now being formulated by a representative committee of operators, but the lessees of the Government land can not enter such a plan without amendment of the general leasing law. Without participation by these Government lessees, occupying 30 per per cent of the area of this very rich field, no cooperative plan can be operative.

The proposed amendments would permit such participation but in nowise compel it. No change would be made in any Government leases, past or future, from the terms of the general leasing law, except as lessees in a single pool may wish to come under a cooperative plan, duly approved by the Secretary of the Interior as in the public interest. Flexibility in the law is provided in order to meet new conditions, but no new provision or condition is mandatory upon Government lessees.

The need of economic regulation of oil and gas field activity is now well recognized as imperative and the Federal Oil Conservation Board has recently, in its report to the President, indorsed the unitoperation plan as the most promising method of effectively promoting conservation and economy for the benefit of all parties in interest, private owners and lessees, Government owner and lessees, and the general public now so dependent upon products of the oil and gas fields of the country.

The unit-operation plan is cooperative and not competitive and the drilling and operating program disregards all property lines within the pool, seeking economy in expenditures and large recovery of resource rather than the usual haste and consequent waste. Necessarily, a longer life of the field being thus promoted, it is essential that the Government lessees have the assurance of a tenure beyond 20 years; hence the amendment to section 17 is absolutely necessary.

Discretionary power is also needed by the Secretary of the Interior in adjusting certain operating requirements of existing law to meet the new conditions of substituting an engineering program of rational well distribution for the present competitive offsetting, which is unduly expensive, but worse than that, almost criminally wasteful. The net result of this more rational plan is expected to be larger

profits to the Government lessees and larger royalty returns to the Government as lessor.

The first and second provisos under section 27 of the act already establish a precedent for combination of interests for cooperative action in constructing and operating refineries and transportation facilities, so that the insertion immediately thereafter of the proposed amendment to this section would seem more logical and especially advantageous in making it plain that the new plan is similarly subject to the restraint-of-trade prohibition contained in the final proviso of this section of the existing law.

While the unit plan is in force in several States on privately owned land and there has proved eminently successful, in no field is it more urgently needed or are greater benefits reasonably to be expected than at Kettleman Hills, which is regarded as one of the world's greatest oil and gas fields. The Government's interest here is already measured by the present royalties exceeding $1,000 a day, from the two wells on Government land, six wells only being allowed to produce under existing conditions. Last year, the Government royalties from this field were $237,909. If all the gas from these Government wells could be sold, instead of by far the greater part wasted into the air, the daily revenue to the Government would be $500 more than at present. This committee is informed that the ultimate returns to the Government from these Kettleman Hills leases under rational development and operation without waste are conservatively estimated at hundreds of millions of dollars. Even more deserving of national concern is the enormous waste of natural gas which must hasten the day of shortage, however large the reserve.

Plainly, the wise administration of this Government property is a major item in the conservation policy, and it is to meet the existing situation in the Kettleman Hills field that the Public Lands Committee regards immediate action on these two amendments as warranted. It is believed that ample provision has been made to protect the public interest, but to permit further consideration of this innovation in public-land legislation it is provided that the act expires two months after the convening of the next session of Congress, thus giving time for reconsideration of the measure. In the meantime, however, prompt action by the Secretary of the Interior may be required to meet. the needs of the Kettleman Hills situation, and these amendments would give him the necessary discretionary power.

The letter in which the Secretary of the Interior inclosed a draft of the bill for introduction, under date of June 5, 1930, which letter also sets forth facts concerning the proposed legislation, is appended hereto and made a part of this report, as follows:

Hon. GERALD P. NYE,

DEPARTMENT OF THE INTERIOR,
Washington, June 5, 1930.

Chairman Committee on Public Lands and Surveys,

United States Senate.

MY DEAR SENATOR NYE: The present importance of preventing the physical and economic waste resulting from competitive, unregulated activity in oil and gas fields is generally recognized, and it has been suggested to me in connection with several unit and cooperative plans submitted that the policy of orderly development can be substantially served and the interests of the United States fully protected by the enactment of appropriate legislation authorizing the Secretary of the Interior, with suitable safeguards, formally to approve such plans and make essential modifications of customary lease terms.

Aside from the general good to be obtained, development and operation of oil fields under such plans will result in lower costs to the producer, greater ultimate recovery of oil and gas, larger royalty returns to the Government through the increased recovery of oil and gas, and most important, will tend to the avoidance of waste in times of overproduction now constantly occurring from so-called checker-board, town-lot, or property-line drilling.

In order to clothe the Secretary of the Interior with the necessary legislative authority, it is suggested that section 17 of the act of February 25, 1920 (41 Stat. 437), be amended to read as follows, the matter in italics being the proposed addition to the section in its present form:

"SEC. 17. That all unappropriated deposits of oil or gas situated within the known geologic structure of a producing oil or gas field and the unentered lands containing the same, not subject to preferential lease, may be leased by the Secretary of the Interior to the highest responsible bidder by competitive bidding under general regulations to qualified applicants in areas not exceeding six hundred and forty acres and in tracts which shall not exceed in length two and one-half times their width, such leases to be conditioned upon the payment by the lessee of such bonus as may be accepted and of such royalty as may be fixed in the lease, which shall not be less than 12% per centum in amount or value of the production, and the payment in advance of a rental of not less than $1 per acre per annum thereafter during the continuance of the lease, the rental paid for any one year to be credited against the royalties as they accrue for that year. Leases shall be for a period of twenty years, with the preferential right in the lessee to renew the same for successive periods of ten years upon such reasonable terms and conditions as may be prescribed by the Secretary of the Interior, unless otherwise provided by law at the time of the expiration of such periods: Provided, That any lease heretofore or hereafter issued under this act that has become the subject of a cooperative or unit plan of development or operation of a single oil or gas pool, which plan has the approval of the Secretary of the Interior as necessary or convenient in the public interest, shall continue in force beyond said period of 20 years until the termination of such plan: And provided further, That the Secretary of the Interior shall report all leases so continued to Congress at the beginning of its next regular session after the date of such continuance. Whenever the average daily production of any oil well shall not exceed ten barrels per day, the Secretary of the Interior is authorized to reduce the royalty on future production when in his judgment the wells can not be successfully operated upon the royalty fixed in the lease. The provisions of this paragraph shall apply to all oil and gas leases made under this act."

An in pursuance of the stated purpose it is further suggested that section 27, as amended April 30, 1926 (44 Stat. 373), of the same law be amended to read as follows, the matter in italics being the proposed addition to the section in its present form:

"That no person, association, or corporation, except as herein provided, shall take or hold coal, phosphate, or sodium leases or permits during the life of such leases or permits in any one State exceeding in aggregate acreage 2,560 acres for each of said minerals; no person, association, or corporation shall take or hold at one time oil or gas leases or permits exceeding in the aggregate 7,680 acres granted hereunder in any one State, and not more than 2,560 acres within the geologic structure of the same producing oil or gas field; and no person, association, or corporation shall take or hold at one time any interest or interests as a member of an association or associations or as a stockholder of a corporation or corporations holding a lease or leases, permit or permits, under the provisions hereof, which, together with the area embraced in any direct holding of a lease or leases, permit or permits, under this act, or which, together with any other interest or interests as a member of an association or associations or as a stockholder of a corporation or corporations holding a lease or leases, permit or permits, under the provisions hereof for any kind of mineral leases hereunder, exceeds in the aggregate an amount equivalent to the maximum number of acres of the respective kinds of minerals allowed to any one lessee or permittee under this act. Any interests held in violation of this act shall be forfeited to the United States by appropriate proceedings instituted by the Attorney General for that purpose in the United States district court for the district in which the property or some part thereof is located, except that any ownership or interest forbidden in this act which may be acquired by descent, will, judgment, or decree may be held for two years and not longer after its acquisition: Provided, That nothing herein contained shall be construed to limit sections 18, 18a, 19, and 22 or to prevent any number of lessees under the provisions of this act from combining their several

interests so far as may be necessary for the purposes of constructing and carrying on the business of a refinery, or of establishing and constructing as a common carrier a pipe line or lines of railroads to be operated and used by them jointly in the transportation of oil from their several wells, or from the wells of other lessees under this act, or the transportation of coal or to increase the acreage which may be acquired or held under section 17 of this act: Provided further, That any combination for such purpose or purposes shall be subject to the approval of the Secretary of the Interior on application to him for permission to form the same: And provided further, That if any of the lands or deposits leased under the provisions of this act shall be subleased, trusteed, possessed, or controlled by any device permanently, temporarily, directly, indirectly, tacitly, or in any manner whatsover, so that they form a part of, or are in anywise controlled by any combination in the form of an unlawful trust, with consent of lessee, or form the subject of any contract or conspiracy in restraint of trade in the mining or selling of coal, phosphate, oil, oil shale, gas, or sodium entered into by the lessee, or any agreement or understanding, written, verbal, or otherwise to which such lessee shall be a party, of which his or its output is to be or become the subject, to control the price or prices thereof or of any holding of such lands by any individual, partnership, association, corporation, or control, in excess of the amounts of lands provided in this act, the lease thereof shall be forfeited by appropriate court proceedings: And provided further, That, for the purpose of more properly conserving the natural resources of any single oil or gas pool or field, permittees and lessees thereof and their representatives may unite with each other or jointly or separately with others in collectively adopting and operating under a cooperative or unit plan of development or operation of said pool or field, whenever determined and certified by the Secretary of the Interior to be necessary or advisable in the public interest. For the purpose of assuring the continuous protection of the interests of the public and of the United States the terms and operation of any such plan shall at all times be subject to the approval of the Secretary of the Interior who is thereunto authorized in his absolute and uncontrolled discretion to establish, alter, change or revoke drilling, producing, and royalty requirements, and otherwise to make such regulations in connection with the institution and operation of any such cooperative or unit plan as he may deem necessary or proper to assure the proper protection of such interests; and if the Secretary of the Interior at any time shall have reason to believe that the continued operation of any such cooperative or unit plan is for any reason prejudicial to the interests of the public or of the United States he is hereby authorized to revoke such plan in whole or in part, or to permit its continued operation upon such altered terms and conditions as he may in his absolute and uncontrolled discretion deem advisable."

The suggested modification for section 17 is purely ministerial in character, and the proposed addition to section 27 has received informal favorable consideration by the Department of Justice.

The authority reposed in the Secretary of the Interior and to be exercised in his sound discretion, if these suggested provisos are enacted, will be a most influential step for the common good.

Very truly yours,

O

RAY LYMAN WILBUR.