SALT CREEK OIL FIELD, WYOMING

THURSDAY, MAY 24, 1928

UNITED STATES SENATE,

COMMITTEE ON PUBLIC LANDS AND SURVEYS,

Washington, D. C.

The committee met, pursuant to recess, at 10 o'clock a. m., in room 212, Senate Office Building, Hon. Gerald P. Nye presiding. Present: Senators Nye (chairman), Kendrick, and Walsh (of Montana).

The CHAIRMAN. The committee will be in order.

TESTIMONY OF E. C. FINNEY, FIRST ASSISTANT SECRETARY OF THE INTERIOR, WASHINGTON, D. C.-Resumed

The CHAIRMAN. I should like, Senator Walsh, to have made just a little clearer as to the title to locations on the part of those who had secured prospecting grants. We have been told in detail about how many acres for the purpose of prospecting

Mr. FINNEY (interposing). You are speaking of the leasing law? The CHAIRMAN. Under the leasing law.

Mr. FINNEY. Under the leasing law the wildcatting or prospecting permit amounts to as much as 2,560 acres on a structure, but not more than three times that area in the same State. That is to say, assuming that Salt Creek was an unknown structure and was being prospected, one man or one company could only have 2,560 acres in a prospecting permit in that structure, and go off into Wyoming in an entirely different field and get another prospecting permit, and another in the same State. Then if he discovered oil he was entitled to a preferred right to a lease on that amount.

The CHAIRMAN. The entire amount?

Mr. FINNEY. Yes, sir. One-fourth he could get at 5 per cent royalty, which was reward for prospecting, and the balance he could get by royalties fixed by the Secretary of the Interior.

The CHAIRMAN. My understanding was that under the leasing law they could only have 640 acres.

Mr. FINNEY. There are several different parts of the leasing act; one portion applying to prospecting and wildcatting provisions of the law, which applies to land unknown to contain oil at all; that is, wildcat land or desert land in which no one knows whether there is any oil or not. Now, to encourage people to drill for this oil, these prospecting provisions are very liberal and they gave 2,560 acres.

Section 17 of the act is what is known as proven oil lands, and as to those lands the ownership is limited to 640 acres, and those must be leased through competitive bidding, auction, etc. All lands

of that type have been leased through competitive bidding for a cash bonus and royalty which is fixed in the advertisement.

Then we get down to these so-called relief sections, 18, 18a, and 19, that deal with one situation. They deal with lands covered by mining locations under the old placer mining law; and Congress in recognition of the equities of those mining locations made provisions in those sections for mining leases. They must have had a producing oil well, and they must have held that mining claim to which they acquired title, and they could have leased the lands up to as high as 3,200 acres.

Under section 18a, the President was authorized to compromise with them.

Section 19 was directed to helping those miners who had locations and who had not gotten oil in their wells, but who had spent at least $250 on each location, and Congress said they might have prospecting permits on the locations and that they go on prospecting, and if they got oil they could lease-the limit was fixed up to 2,560 acres.

The CHAIRMAN. In section 18, this paragraph is found:

No claimant for a lease who has been guilty of any fraud or who had knowledge or reasonable grounds to know of any fraud, or who has not acted honestly and in good faith, shall be entitled to any of the benefits of this section.

Explain, again, Mr. Finney, please, what the department considered constituted reasonable grounds for knowledge of any fraud in that connection.

Mr. FINNEY. Take the case of a mining claim, or claims located by one party, if you please, with seven dummies-and there was a case in California, which comes to my mind, where a man by the name of McMurtry, in connection with the oil fields in the Midwest district in California, who conceived the idea of locating 160 placer mining claims, so he used the name of seven people in New York and Chicago; they were all people who were alive, but they had no real interest in the claims, in that they did not put up any money or pay any expenses connected with the location, nor did they actually, personally, participate in any of the claims. He located a number of tracts of land under the old placer mining law. McMurtry was in California, and these other people were in New York and Chicago. McMurtry did some drilling work on the claims and then sold out these mining locations to one or more oil companies, and he got, as I recall it, about $1,000,000 for these claims.

The application was made for patent under the old placer-mining law for those claims. Our agents reported that seven people were dummies, that they had no interest in these lands, that they had not put any money into it and had never gotten any money out. We had the matter investigated, and we held that those mining applications should be rejected on the ground that seven of the people were dummies and that McMurtry had done wrong in securing the claims in that manner.

Senator WALSH. Did you take the testimony of the other alleged locators?

Mr. FINNEY. Offhand I can not recall. I know our agent ran them down and found they had no interest whatever in the claims. We rejected or canceled that mining application. Under the leasing law the Associated Oil Co. and the United Oil Co., I think, had

acquired these lands, and they came in and said they had purchased the lands; and we said that "Your claim is based on the McMurtry locations, and they are dummies." "Well," they said, "we do not know anything about that; we were absolutely innocent of anything like that," and they filed proof which convinced the department that they made the purchase in good faith. They said that "McMurtry showed us these powers of attorney from the locators," and they said that "He furnished us with abstracts of title," which were all regular, etc., and "We paid $1,000,000, and we have spend much money in drilling oil wells in these lands," and they said they were producing oil companies. That was the Associated and United, and they were given an oil lease. That was on the theory that they did not know of the fraud and had no reasonable grounds to know it.

The CHAIRMAN. In that connection I would like to cite the case of Crocker v. United States (p. 240, vol. 74), the syllabus of which is supported by the opinion. This, by the way, is a case in which a contract was involved for the purchase of carriers' mail sacks by the Government, and it was discovered that one of the superintending officers of the Government had an understanding with the manufacturer with whom the contract was entered into for-well, in plain English-a rake-off on the contract. The syllabus reads as follows:

The Postmaster General was justified in rescinding, because tainted with fraud, a contract with a corporation for furnishing letter carriers' satchels for the free-delivery service upon his discovery of the existence of a secret arrangement whereby the superintendent of such service, in case the corporation secured the contract, was to receive a share of the profits, although the corporation may have been without actual knowledge of the corrupt arrangement, where it was made by the corporation's agents while endeavoring to secure the contract for the corporation, and was a means to that end, and the fruits of their efforts were accepted by the corporation.

In the third paragraph in the same case:

Public policy forbids any secret arrangement between the agents of a corporation and the superintendent of the free-delivery mail service, who is charged with important duties relating to the purchase of letter carriers' satchels for such service whereby, in case the corporation shall secure the contract for furnishing such satchels, the superintendent is to receive a share of the profits. Now, it seems to me that case is in point.

Mr. FINNEY. That would be in point ordinarily as to the locators or under the general mining law of anyone who had bought a mining claim; but, as in the case of McMurtry, Congress, in considering this leasing law, knew that it was charged that some of these locations were dummies, and in the case of those companies, who presented their claims before it, by witnesses at the hearings, made provision to take care of those who had purchased in good faith and who, under reasonable grounds, did not know of any fraud.

The CHAIRMAN. In the case I cited, the corporation which secured the contract for the furnishing of these carrier bags had no knowledge, no direct knowledge, of the secret arrangement whereby the agent for the Government was getting a portion of that profit from that contract.

Mr. FINNEY. That is right.

The CHAIRMAN. Yet, the court held in that case that that did constitute reasonable ground, at least for the cancellation of the contract. Mr. FINNEY. And Congress could have passed an act and validated that contract.

The CHAIRMAN. And do you contend that was what was done in the case of the oil leases?

Mr. FINNEY. Yes, sir.

Senator WALSH. I might say here that the argument upon which Congress was induced to pass these relief sections, knowing that it was claimed in some cases that the location had been made by dummy locators, and possibly there were other fraudulent features in the original locations, it was said that these men had gone out on the general public domain, where no one knew that there was any oil, and where it was scarcely expected that there was any oil, and the Government never would have known that there was any oil there; the land had no value at all, and they would have been disposed of under the other acts of Congress; that it would have been taken up as homesteads and desert claims and the land would be appropriated in various ways and the Government get little or nothing out of them. In that situation of affairs, these men went out on the public domain, in often remote and unhospitable regions and spent a large amount of money and demonstrated the oil-bearing character of the lands. Now, if it was located by dummies, they then sold these lands to corporations who, as far as it could be shown, were innocent purchasers, and they had gone on and made improvements and constructed pipe lines and established refineries, relying upon the perfect good faith of the location; and the argument was made to Congress that it would be wholly unfair to those people to cancel these contracts and locations, or declare them to be utterly void and of no effect and this Government take all the fruits of the enterprise and courage and expenditures of the venturesome prospector. Whether that was good argument or bad argument, those were the arguments that induced the enactment of these relief sections of the bill. Mr. FINNEY. Yes.

The CHAIRMAN. That is all I have.

Senator WALSH. Mr. Finney, we had reached the point where you told us of the showing made by these people who were affected by the charge of the fraudulent character of the Henshaw-Fitzhugh locations, and you told us that they came forward with affidavits. Mr. FINNEY. Yes, sir.

Senator WALSH. Not attempting to vindicate the legal character of the locations, but merely to establish their want of knowledge. Mr. FINNEY. Yes, sir.

Senator WALSH. That is, of the fraudulent character, if they were fraudulent, and their own good faith in the purchase?

Mr. FINNEY. Yes, sir.

Senator WALSH. Now, upon that showing made, what further steps, if any, were taken in the matter?

Mr. FINNEY. As I recall it, those affidavits were put in the record, of Mr. Schuyler and

Senator WALSH. Yes; and Shoup.

Mr. FINNEY. You do not care to have me read any further from those affidavits. I have a later statement from Mr. Schuyler, in his affidavit, bearing somewhat upon this question of the good faith. Senator WALSH. Will you read that?

Mr. FINNEY. This was Schuyler, who was in California at the time he interviewed Henshaw.

Senator WALSH. You told us about a conference in San Francisco. Mr. FINNEY (reading):

At said conference representations were made by the representatives of the Henshaw interests that everything from start to finish was regular. This affiant inquired especially of Judge Henshaw as to the good faith of the locators of those oil-placer claims, to which Judge Henshaw, in substance and effect, replied to this affiant as follows: Schuyler, I have been deciding questions of title and as to dummy locators of placer-mining claims on the average of about twice a year. I know the importance of that subject. I have personally supervised all legal questions in connection with these Salt Creek locations; I can assure you that these locators are in good faith, each one owning the interest appearing in his name." He stated further that William G. Henshaw was authorized to act at this conference for all the locators; that the price which he was demanding for said claims had been fixed only after a full consultation with all his associates; and that the said O. H. Shoup and this affiant could rely upon the assurance there made, both that all transactions had been regularly and lawfully conducted, and that William G. Henshaw represented the absent associates.

Senator WALSH. Well, now, will you proceed?

Mr. FINNEY. Yes, sir. The department felt that it should make some further inquiry, notwithstanding the filing of these affidavits, so arrangements were made for a hearing before the Secretary of the Interior, at which departmental representatives, these two gentlemen, Messrs. Bell and Bouton, and representatives of the oil companies were present. That hearing was set down for December 18, 1920. That hearing was held in the office of Secretary Payne, of the Interior Department, at which were present Charles D. Mahaffie, solicitor for the department; Clay Tallman, Commissioner of the General Land Office; Mr. Bell and Mr. Bouton, of the Department of Justice; Mr. Finney, of the board of appeals; and for the oil companies, Mr. Roberts, Mr. T. A. Dines, and Mr. L. L. Aitkin. The hearing was then had at that time and place and was stenographically reported. I have a copy of that stenographic report. Senator WALSH. I think it well that we have that incorporated in the record.

The CHAIRMAN. It is so ordered.

(The stenographic report referred to is as follows:)

BEFORE THE SECRETARY OF THE INTERIOR

In the matter of applications for oil and gas leases or permits under act of February 25, 1920 (Public 146), by Midwest Oil Co., Wyoming Associated Oil Corporation, et al.

DECEMBER 18, 1920.

Present: Hon. John Barton Payne, Secretary of the Interior; Charles D. Mahaffie, Solicitor for the Interior Department; Clay Tallman, Commissioner of the General Land Office; Mr. Bell, Department of Justice; Mr. A. B. Bouton, Department of Justice; and Mr. Edward C. Finney, board of appeals. For the Midwest Oil Co. and Wyoming Associated Oil Corporation: Mr. Roberts, Mr. T. A. Dines, and Mr. L. L. Aiken.

Mr. MAHAFFIE. Mr. Bell, you may begin.

Mr. BELL. Shall I?

Mr. MAHAFFIE. Yes; they have submitted their affidavits.

Mr. BELL. Mr. Secretary and honorable chairman of the board of law review, the subject of leasing the Salt Creek field in Wyoming is naturally one of tremendous importance, owing to the value of the field, if nothing else. That fact, together with the fact that there have been so many applications for patents and leases leads me to comprehend that you gentlemen have had troubles of your own. I suppose it is for this reason and for the reason that this has occupied the attention of so many people that the commissioner asked for a