Senator KENDRICK. The reason why I raise the question is this: It seems to me, from the little information I have of present operations of the leasing law now in effect, that very rarely the original lessees drill the land themselves. I think the record which you have given here is not only important and gives a very definite picture of the situation, but there is, of course, the necessity of joint interests rather than of transferred interests for the benefit of one party. But the present day system operates almost entirely along the line I have suggested. One party assumes to speak for a group.

Senator WALSH. Now, prior to the time the act of February 25, 1920, was passed, the Government set up a claim that many of these locations of placer-mining claims in the Salt Creek Field, at least a considerable number, had been located fraudulently under the law, and that the locations were void because entered by so-called dummy locators, and the holders of these claims, either the original locator's or their assistants, were denying that contention and insisting that they were acting under strict conformity with the law and that they were enitled to them.

The Government, according to information which I think will be submitted, was about to institute suits, a considerable number of suits, for the purpose of enjoining these locators or their successors in interest, from taking any further oil out of the ground, upon the contention that these locations were void. Likewise, not only in the Salt Creek field, but in various other sections of the country prior to the enactment of this law, locators had gone upon the public domain and had staked out their claims, had gone to great expense to get in drilling machinery, build roads, and bring in water, when this act took effect, before they had really got down to where oil was; and it was contended, and with much justice that, seeing they could not go on and get a patent to the land that they contemplated, that some consideration should be given them on account of their having pioneered and gone into the section and making, at large expense, new developments and so on, the Government issued instructions which are the relief provisions in this act of February 20, 1920, known as section 18, 18A, and 19. Section 18 reads as follows [reading]:

That upon relinquishment to the United States, filed in the General Land Office within six months after the approval of this act, of all right, title. and interest claimed and possessed prior to July 3, 1910

That was the date of the President's withdrawal order. [Reading:] and continuously since by the claimant or his predecessor in interest under the preexisting placer mining law to any oil or gas bearing land upon which there has been drilled one or more oil or gas wells to discovery embraced in the Executive order of withdrawal issued September 27, 1909, and not within any naval petroleum reserve, and upon payment as royalty to the United States of an amount equal to the value at the time of production of one-eighth of all the oil or gas already produced except oil or gas used for production purposes on the claim, or unavoidably lost, from such land, the claimant, or his successor, if in possession of such land, undisputed by any other claimant prior to July 1, 1919, shall be entitled to a lease thereon from the United States for a period of twenty years, at a royalty of not less than 121⁄2 per centum of all the oil or gas produced except oil or gas produced for production purposes on the claim, or unavoidably lost.

That means that if one on July 1, 1919, was in possession of land within this area, claiming to own it in consequence of a location or

occupancy of the land made prior to July 3, 1910, which was the date of the President's withdrawal order-that is to say, if one had been on there, or his predecessor had been on there, before July 3, 1910, located land and remained continuously on the land since. You will also observe that "there has been drilled one or more oil or gas wells to discovery." That is, if they went on prior to 1910 and at any time since that time they had gone on the land and were in occupancy in 1919, they were entitled to a lease on it at 122 per cent. But there was a proviso reading:

Provided, That not more than one-half of the area, but in no case to exceed three thousand two hundred acres, within the geologic oil or gas structure of a producing oil or gas field shall be leased to any one claimant under the provisions of this section when the area of such geologic oil structure exceeds six hundred and forty acres. Any claimant or his successor, subject to this limitation, shall, however, have the right to select and receive the lease as in this section provided for that portion of his claim or claims equal to, but not in excess of, said one-half of the area of such geologic oil structure, but not more than three thousand two hundred acres.

That is important because, as I understand it, it is likewise claimed here that while any lease was actually issued to anybody for acreage greater than 3,200 acres, leases were issued to various corporations that were intimately associated, either by stock ownership or otherwise, so that in effect, as I understand it, it was contended that leases were issued to one corporation for a greater amount than that. I continue [reading]:

All such leases shall be made and the amount of royalty to be paid for oil and gas produced, except oil or gas used for production purposes on the claim, or unavoidably lost, after the execution of such lease, shall be fixed by the Secretary of the Interior under appropriate rules and regulations: Provided, however, That as to all like claims situate within any naval petroleum reserve the producing wells thereon only shall be leased, together with an area of land sufficient for the operation thereof, upon the terms and payment of royalties for past and future production as herein provided for in the leasing of claims.

Under that there were a number of wells in naval reserve No. 2 in the State of California leased by the Secretary of the Interior. [Reading:]

No wells shall be drilled in the land subject to this provision within six hundred and sixty feet of any such leased well without the consent of the lessee: Provided, however, That the President may, in his discretion, lease the remainder or any part of any such claim upon which such wells have been drilled, and in the event of such leasing such claimant or his successor shall have a preference right to such lease: And provided further, That he may permit the drilling of additional wells by the claimant or his successor within the limited area of six hundred and sixty feet theretofore provided for upon such terms and conditions as he may prescribe.

Now, there is something further here, but it need not concern us at present

Section 18 A provides [reading]:

That whenever the validity of any gas or petroleum placer claim under preexisting law to land embraced in the Executive order of withdrawal issued September 27, 1909, has been or may hereafter be drawn in question on behalf of the United States in any departmental or judicial proceedings, the President is hereby authorized at any time within twelve months after the approval of this act to direct the compromise and settlement of any such controversy upon such terms and conditions as may be agreed upon, to be carried out by an exchange or division of land or division of the proceeds of operation.

That is, the President may settle and compromise these by a division of the land or a division of the proceeds.

Section 19 provides [reading]:

That any person who on October 1, 1919, was a bona fide occupant or claimant of oil or gas lands under a claim initiated while such lands were not withdrawn from oil or gas location and entry, and who had previously performed all acts under then existing laws necessary to valid locations thereof except to make discovery, and upon which discovery had not been made prior to the passage of this act, and who has performed work or expended on or for the benefit of such locations an amount equal in the aggregate of $250 for each location if application therefor shall be made within six months from the passage of this act shall be entitled to prospecting permits thereon upon the same terms and conditions and limitations as to acreage as other permits provided for in this act, or where any such person has heretofore made such discovery, shall be entitled to a lease thereon under such terms as the Secretary of the Interior may prescribe, unless otherwise provided for in section 18 hereof: Provided, That where such prospecting permit is granted upon land within any known geologic structure of a producing oil or gas field, the royalty to be fixed in any lease thereafter granted thereon, or any portion thereof, shall be not less than 122 per centum of all the oil or gas produced, except oil or gas used for production purposes on the claim or unavoidably lost: Provided, however, That the provisions of this section shall not apply to lands reserved for the use of the Navy: Provided, however, That no claimant for a permit or 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.

I think that is all that will be necessary for us now to offer.
The CHAIRMAN. Mr. Finney.

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

(The witness was duly sworn by the chairman.)

Senator WALSH. Mr. Finney, did you hear the statement that I made to the committee?

Mr. FINNEY. Yes, sir.

Senator WALSH. Now, is there anything else in the matter of the law applicable to the subject of this investigation which you think ought to be stated?

Mr. FINNEY. I think your statement is very comprehensive, Senator; but there were one or two points, I think, omitted.

Senator WALSH. Will you not please supply any deficiency.

Mr. FINNEY. Yes, sir. You referred to the fact that at one time a suit or suits were contemplated in the Salt Creek field to enjoin the taking of oil from the land, pending the settlement of the controversy.

Now, I think one reason, or probably the principal reason, these suits were not filed was because of the proposed leasing act and the fact that Congress on August 25, 1914, passed an act which authorized the Secretary of the Interior to enter into temporary agreements with those having producing oil and gas wells

Senator KENDRICK. Mr. Finney, will you speak louder; I can not hear you on account of the noise.

Mr. FINNEY. Yes, sir. This act authorized the Secretary of the Interior to enter into temporary agreements or arrangements with the owners of these producing oil or gas wells for the operation of those wells and the impoundment of all or a part of the proceeds pending the outcome of either litigation or legislation by Congress, and many such agreements

Senator WALSH (interposing). Have you that act before you, Mr. Finney?

Mr. FINNEY. Yes, sir. It is the act of August 25, 1914, 38 Stat., p. 408.

Then, another point.

Senator WALSH (interposing). Just before you pass that, Mr. Finney.

Mr. FINNEY. Yes, sir.

Senator WALSH. Tell us whether agreements were entered into under the provisions of that act.

Mr. FINNEY. Yes, sir; numerous agreements were entered into under the provisions of that act, both in the Salt Creek field and other fields in Wyoming and in fields in California. Those agreements provided for the impoundment of enough of the proceedsnot all, because it was thought that parties had to have something to go on and finance their undertaking-but substantial parts of the proceeds were impounded under those agreements.

Senator WALSH. Do you now recall about what amount of money was thus impounded?

Mr. FINNEY. I can not tell you exactly. It was in no case less than one-eighth. In some cases it was larger amounts. Those moneys were all impounded in banks; but, in cases where receivers were in charge, the receivers took charge of the proceeds, but this agreement remained in effect.

Senator WALSH. That is to say, pending the litigation.

Mr. FINNEY. Of the final outcome of the leasing act of February 25, 1920.

Senator WALSH. Some suits started out in California and in other States were obviated by this statute, to which you have called our attention?

Mr. FINNEY. That is correct.

Senator WALSH. Do you now recall, Mr. Finney, generally, how much money was impounded under the provisions of this act? Mr. FINNEY. You mean the total amount?

Senator WALSH. Yes.

Mr. FINNEY. No; I could not say, Senator. It was several millions of dollars, though.

Senator WALSH. Proceed, please.

Mr. FINNEY. Another part of section 18 which you

Senator KENDRICK (interposing). If I may ask, before you proceed further, so as to clarify the situation. These funds were impounded and placed in the banks in each case as a protection to the Government in case the Government established its claim to the land?

Mr. FINNEY. That was the purpose, I assume; yes, sir.

Senator KENDRICK. And, obviously, if the claimant or the locator had a right to a deed to the land, the funds were to be released to the owner.

Mr. FINNEY. If it was approved. If he was entitled to the land patent and received the patent, he got back the entire amount deposited under this agreement. If, on the other hand, he was

awarded a lease

Senator KENDRICK (interposing). So that the funds were, in a sense, placed in the bank in escrow until the question of the title was established?

Mr. FINNEY. Yes, sir. If a lease, he got back his deposit, less the amount of royalty due the Government under the general leasing act. One part of section 18 I think you did not mention, Senator, was this clause which should not be omitted in this matter [reading]:

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. Senator WALSH. I think I read that.

Mr. FINNEY. I did not hear it. Aside from that, I think you have covered the matter generally.

Senator WALSH. I think you should call attention to the general limitation statute, the limitation as to amount. Would you please refer to that?

Mr. FINNEY. Yes. There is a general section in the leasing act of February 25, 1920, which is intended to be applicable and is applicable to all mineral deposits which are subject to lease under that act-oil, gas, coal, phosphate, and sodium. That is section 27 of the act of February 25, 1920.

With respect to oil and gas, it was provided that no one person, association, or corporation could take or hold at any one time more than three oil or gas leases granted hereunder in any one State, and not more than one lease within the geologic structure of the same producing oil or gas field.

Senator WALSH. Will you not please go on and give the rest of it? Mr. FINNEY (reading) :

No corporation shall hold any interest as a stockholder of another corporation in more than such number of leases; and no person or corporation shall take or hold any interest or interests as a member of any association or associations or as a stockholder of a corporation or corporations holding a lease under the provisions hereof, which, together with the area embraced in any direct holding of a lease 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 under the provisions hereof, for any kind of mineral leased 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 under this act.

Senator WALSH. What was that in the case of the oil, Mr. Finney? Mr. FINNEY. Generally speaking, under the general provisions of the act the maximum which could be held under one lease was 2,560 acres and three times that in a State; but under the provisions of the relief sections the acreage was different.

There is also provided in this same section [reading]:

That nothing herein contained shall be construed to limit sections 18, 18A, 19, and 22.

Now, those were the relief sections, section 22 applying to Alaska, and is not pertinent here.

Senator WALSH. Please read the whole proviso.

Mr. FINNEY. Yes, sir; I will read it [reading]:

Provided, That nothing herein contained shall be construed to limit sections 18, 18A, 19, and 22, or to prevent any 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: Provided further, That any combination for such pur