I should like that this statement become a part of your records, and assure you that I have great confidence in the wisdom and vision of your committee, and that I believe your recommendation to Congress will be such as to render equity to all parties concerned and produce the greatest development along all lines in Osage County.

Respectfully submitted.

CYRUS S. AVERY,

Tulsa, Okla.

(The following statement was submitted at Chilocco, Okla., May 13, 1920, by Mr. Earl Oliver, in behalf of the Marland Refining Co., Ponca City, Okla., and directed to be appended to the Osage hearing):

BRIEF BY MARLAND REFINING CO., IN RE H. R. 12886, SIXTY-SIXTH CONGRESS, SECOND SESSION, SUBMITTED TO SPECIAL COMMITTEE OF COMMITTEE ON INDIAN AFFAIRS AT CHILOCCO, MAY 13, 1920.

COMMITTEE ON INDIAN AFFAIRS,

PONCA CITY, OKLA., May 11, 1920.

House of Representatives, Washington, D. C'.

GENTLEMEN : Analysis of the bill H. R. 12886, introduced March 3, 1920, to amend section 3 of the act of Congress of June 28, 1906, entitled An act for the division of the lands and funds of the Osage Indians in Oklahoma, and for other purposes," discloses three outstanding features.

I. Extension of the trust period and the oil and gas leases.

II. The leasing of the entire Osage prior to 1930.

III. Immediate application of the 3 per cent gross-production tax.

The parties in interest in this bill might be classified as follows:

First. The Osage Nation.

Second. The Osage and oil and gas lessees.

Third. The public at large, being interested through the prevention of waste of oil and gas.

Fourth. The taxpayers of Oklahoma.

Fifth. The persons who have purchased the fee of these lands from Indian

owners.

Regarding the first question, i. e., extension of the trust period, we find that of the five classes interested the Osage Nation, the Osage oil and gas lessees, and the public at large would be benefited by an extension of the trust period. The taxpayers of Oklahoma would not be benefited by the extension standing alone, but, coupled with immediate application of the 3 per cent gross production tax, would be very much benefited. The fifth class (those who have purchased Indian fee lands) would naturally oppose such extension inasmuch as they would not secure the oil properties they hope to secure by failure of the extension being granted. Thus we have of the five directly interested classes three that would be benefited; the fourth would be benefited in the event the 3 per cent gross-production tax is applied immediately, as proposed; and the fifth class, i. e., the purchasers of Osage fee lands, is the only one out of the five whose wishes would be difficult to satisfy in the event of an extension being granted. The manner in which each of these classes would be benefited or injured by an extension of the trust period is given below.

I.--EXTENSION OF THE TRUST PERIOD AND THE OIL AND GAS LEASES.

The Osage Nation is interested in the extension being granted immediately for the following reasons: The surface rights were allotted to the individual Indian in 1906, but the mineral rights are held in common until 1931, at which time they become vested in the owner of the fee unless Congress provides otherwise. At the present time approximately per cent of the surface rights have passed out of Indian ownership. The sales of surface rights are being made as rapidly as restrictions are removed, and it is expected that by 1931 only a very small percentage of the surface of the lands will be owned by the original allottees. The mineral right is becoming a source of large income to the Osage Nation. Every enrolled member of the Osage Tribe has accumulated rights out of the oil and gas to the aggregate amount of approximately $23,000 each, or, as a nation, in excess of $50,000,000. Of this

amount 40 per cent is derived from the royalties of oil and gas and 60 per cent accumulated from the bonuses which have been paid for oil and gas leases. It is apparent therefore that the bonus feature is much more important to the Osage Nation than is the royalty feature. Furthermore, the system of bonus has been practiced to any extent only since 1916, or 4 years, whereas the royalties have been accumulating for 20 years. During the year 1919 the bonuses amounted to approximately twice the amount of royalties.

Oil lessees can not afford to pay high bonuses on leases which have only 10 years or less to run. In the event the extension is not granted the Osage Nation will not only lose the royalties after 1931 but it will immediately suffer a decrease of bonuses. It is therefore vastly to the benefit of the Osage Nation that the extension be granted immediately. It would lose more in decrease of bonus at any one sale, such as those that have been conducted during the past two years, than the entire 3 per cent gross production tax will amount to for the full year.

The Osage oil and gas lessees are interested in an extension being granted for the following reasons: In 1931, unless an extension be granted prior to that date, the right of the oil and gas lessees to the property they have developed will cease and these properties in their entirety will become the property of the fee owners, with the exception of certain tools and machinery which might be removed. On the other hand, it is set out in the leases under which these properties are now being operated as well as provided in this bill that these leases shall continue as long as oil and gas are produced, provided the mineral rights remain in the Osage Nation. It is therefore important to the oil and gas lessees that an extension be granted some time prior to the expiration date in 1931. It would be a matter of convenience to the operators if such extension be granted at an earlier date inasmuch as it would enable them to more advantageously plan the development of their properties, but an immediate extension would serve only as a convenience, not a necessity, for the lessees. As a penalty for an immediate extension, however, it is required in this bill that the 3 per cent gross production tax be immediately applied. Under such an arrangement the lease owner who now has his lease fully developed and which will in 10 years be producing only a small per cent of its present production will have paid during the 10 years approximately as much in 3 per cent gross production tax as the property at the end of 10 years will be worth.

He is therefore being asked to pay for an immediate extension, which he does not in any manner need, a sum equal to the value of the property at the time it is renewed to him. That such extension will eventually be granted, even although it might be delayed for several years, would appear almost a certainty; for it is scarcely conceivable that any Congress would take away valuable oil property from the companies who expended their money in developing the property and incurred the risk incident thereto, having excellent reason to assume that such extension would be granted by reason of the clause in the lease itself, and give such developed property to third persons who had done nothing whatever but purchase the surface of the land at a very low price from the Indian owner and received full value for their money paid.

The public at large is interested in an extension in order that waste of oil and gas and undue cost of producing same is prevented. Men with some vision and a knowledge of conditions are becoming alarmed at the situation of the United States as regards petroleum.

It is recognized that we are at the beginning of the petroleum age, and that the United States, which has heretofore led the world in petroleum production, has now approximately no more than a 15 years' unmined supply. Thus, at a time when control of an adequate supply means world supremacy, she is faced with an early famine, whereas England, having no large supply of her own, has gone out in the undeveloped portions of the world and secured control of unmined reserves until certain of her public men acquainted with petroleum conditions now predict that in the course of 10 years the United States will be purchasing from English companies almost twice the amount of oil which the United States now consumes. It is, therefore, of vast importance to the people of the United States that all reasonable measures be taken to prevent waste

of the supply which remains.

It is an accepted fact that the United States has criminally wasted her supply of petroleum. Oil of a grade superior to that of most any other country has been forced onto the market under conditions which compelled its use for any purpose, however uneconomical such use might be. Millions of barrels of oil

have been permitted to flow down creeks or to evaporate in inefficient, wasteful storage, and many millions more have been turned into channels for which it should not have been used. In addition to this waste, fully four times as much money has been expended in the development of oil fields as was necessary to the economic production of the oil and gas. These are astounding statements when the importance of the industry to the welfare of the people of this Nation is considered.

This great waste of both product and money is due to one cause alone, namely, the small lease. Each great field, such as the midcontinent, or even the Osage division of the midcontinent, is made up of many distinct local pools, varying in area from a few acres in extent to several square miles. Under the American system of ownership of lands practically every pool of consequence is covered by many small tracts of land. While petroleum and natural gas will not migrate from one local pool to another, yet each local pool is merely one reservoir within which these products are migratory, and consequently the depletion of a pool through any one hole will correspondingly decrease the amount of oil and gas that might be obtained by all the other landowners. The result of this condition, therefore, is that whenever a new pool is discovered every landowner is compelled to drill wells on his own land, or have them drilled, and take the oil and gas therefrom at the greatest possible haste in order to secure his proportion from the common pool. He can not wait until the market requires his oil or gas nor until he has adequate storage and marketing facilities; neither can he drill only the number of wells which will most efficiently produce them. An actual illustration of the waste of these products by allowing them to escape into the atmosphere and run down streams can not be given you at this time, although such condition is well known to every man who has been in the vicinity of newly discovered rich pools.

As to the waste of money in the development of pools under these conditions, your attention, however, is called to the accompanying map of the Glenn pool, showing on the left the actual manner in which it was drilled under the small lease ownership, while on the right is shown the condition under which, except for the small land divisions, it would have been drilled to produce the oil at the least possible cost. This chart was made some years ago and it numbers the wells of that date as being 2,500. The average cost was placed at $4,500, although at this time such wells would cost $15,000. The total cost, even at those prices, was $11,250,000, whereas had the small-lease system of development not prevailed not more than 706 wells would have been required to produce the oil, which, at the same cost per well, would have amounted to only $3,177,000, or slightly in excess of 25 per cent of the actual cost.

In addition to the vast unnecessary development cost, this type of drilling, as you will recall, created such an over-production of oil that hundreds of thousands of barrels were permitted to flow into the creeks. Great quantities were stored in earthen storage where its valuable content was permitted to evaporate or soak into the ground, and additional great quantities of this high-grade oil were forced into fuel channels. Most of the gas was entirely wasted. You may think this loss is borne alone by the producer. It is not. The cost eventually is paid by the consumer.

Under the present system of leasing in the Osage, the Interior Department, in order to avoid any semblance of fostering a monopoly, felt it advisable to divide the Osage oil leases into tracts not larger than 160 acres. For the purpose of gas leases, however, it has made each lease to consist of many thousands of acres in extent. In order to prevent waste insofar as possible and undue development it very wisely refused to subdivide the land into lesser tracts than 160 acres, and in addition to maintaining the size of oil and gas leases named it imposed many conservation rules, which, while occasionally appearing harsh to the operator, yet are recognized under all circumstances as being much to the public benefit. Such conservation rules have been found to be almost entirely useless under small land divisions. This is illustrated by the difficulty experienced by the Department in enforcing similar rules in the Creek country where Indian lands are interspersed with unrestricted lands.

Without doubt the departmental conservation rules in the Osage have made this vast productive area the most striking example of efficient conservation of petroleum and natural gas in the United States where the lands are divided into many diverse ownerships. The only examples in the United States of more efficient conservation are those where one or at least a very few interests control an entire local pool. This enables them to produce the oil and gas as

needed and at the least cost, but it is perhaps objectionable in that it permits withholding these products at a time when they are needed.

As has been stated, the typical Osage oil leases are not less than 160 acres each and gas leases not less than several thousands of acres each. The allotment act of 1906, which gave to the Indians the surface of the land, and to whose assigns the oil and gas rights will go in 1931 in the event the extension is not granted, did not follow this 160-acre rule. While many of the allotments exceed 160 acres in extent, yet they are not regular and confined to quarter sections as are the oil leases, so that many of the present 160-acre leases will in 1931 be divided into three, four, five, six, and often more leases. Each large gas lease will be divided into innumerable small leases, none of which will afford sufficient gas to justify installing facilities to care for same; consequently the gas will be permitted to escape into the air and be wasted to a very large extent or be turned into such channels as will be an economic waste. These many subdivisions will entail a vast amount of additional drilling and additional cost in operation, together with great waste of oil and gas, and, as previously stated, the public pays.

The taxpayers of Oklahoma would be interested and much benefited in an extension being granted, provided coincident therewith the 3 per cent gross production tax becomes effective. If an agreement is not reached or some bill passed, the State of Oklahoma can not collect taxes until 1931; but if some arrangement is reached which is satisfactory to all parties and the bill passed at once, then the State of Oklahoma will begin collecting taxes immediately. Such taxes would amount to the sum of $1,500,000 or more per year, and in the 10-year period perhaps $15,000,000 or more will go into the treasury of the State of Oklahoma and theoretically, at least, relieve the remaining taxpayers proportionately. The position might be taken that Congress can give the right to the State of Oklahoma to impose the 3 per cent tax immediately without granting an extension. Conceding that it can do such thing, it is scarcely conceivable that it will do the injustice to the oil operators of taking valuable property from those who have developed it and give same to a body of land speculators, while at the same time imposing a heavy tax burden not otherwise permissible. It can be safely assumed that such condition will not arise under a Democratic form of Government, and therefore each year's delay of extension will mean $1,500,000 or more per year being kept out of the treasury of Oklahoma.

Assuming, therefore, that a satisfactory arrangement is made regarding the application of taxes, the taxpayers of Oklahoma would be vastly benefited by an immediate extension of the trust period.

Persons who have purchased the fee land from Indian owners are interested in the extension of the trust period or failure of such extension for the following reasons:

Prior to the end of 1919, approximately one-third of the surface ownership of Osage lands had passed to other than the original allottees. This process of transfer is occurring as rapidly as restrictions are being removed or conditions arise which make possible the sale of such lands. The prices paid vary from $3 to $20 per acre, with perhaps $10 as the average price. The exact figures are not available for most sales, but sufficient transfers have been made in public sale under supervision of the courts and of the Indian Department that will afford a reasonably accurate and reliable indication of the prevailing prices, except that it can be assumed these sales made under the watchful care of the courts and of the department allowing freedom of competitive bidding brought much higher average prices than did those sales negotiated privately between the typical speculator on Indian lands and the typical Indian allottee.

acre.

During the fiscal year ending June 30, 1916, there were sold through the Indian Office 13,123 acres at an average price of $8.31 per acre; during the fiscal year ending June 30, 1917, 10,346 acres at an average price of $9.51 per On March 4, 1919, 5.886 acres were sold at an average price of $18.44 per acre. All the above sales were made at public auction and on terms which permit the purchaser to pay one-fourth down, one-fourth in one year, one-fourth in two years, and the remaining one-fourth in three years, with interest at 6 per cent. At private sales, which required the approval of the department, there were sold 3,549 acres at an average price of $17.56 per acre. All deeds issued contained a clause stating that the land was sold subject to the mineral rights of the Osage Tribe as provided in the act of Congress of June 28, 1906.

The figures were taken from a brief published some months ago by the tribal council and are assumed to be correct.

Accompanying the ownership of the surface is the possibility that the trustperiod extension of the mineral rights will not be granted so that in 1931 these rights will also become the property of the surface owner. This not only means that he will then secure the one-sixth royalty, which now goes to the Osage Tribe, but he will also acquire the entire developed oil and gas property located on his lands, allowing to the operator only the right to take off certain tools and equipment which will be of insignificant value.

Thus if the extension is not granted the surface owner will have acquired the entire developed oil property together with the royalty and surface at prices ranging from $3 to $20 per acre, whereas the oil operator has paid an average price of $87.67 per acre at these sales for the mere right to drill, paying out of such production as he secures from one-fifth to one-sixth royalty, and assuming heavy obligations in the way of development. In many instances bonuses as high as $1,000 to $4,000 per acre were paid for this right accompanied by the heavy obligations stated.

Disregarding for the moment any right of the Osage Tribe to expect an extension of the trust period ard merely weighing the equities of the surface owner as against those of the oil and gas lessees, they are as follows:

The provision of the allotment bill of 1906 states that the mineral right would pass to the surface owner in 1931 unless otherwise provided by Congress. The oil and gas leases were written with the intent that they should continue so long as the mineral right remained in the tribe. We therefore have the surface owner with no legal right to claim the minerals in 1931, but who merely entertains the hope that he shall acquire the mineral right togetherd with the developed oil property on that date. On the other hand, we have the oil and gas lessees, who have no legal right to an extension of the trust period after 1931, but who merely entertain the hope that such trust period will be extended. Each class, therefore, has only a hope on which to base its claims for recogı ition, but the hope of each class is supported by vastly different reasons for recognition.

The surface owner paid insignificant sums for which he has already received much more than full value in the surface rights acquired, but for which he hopes eventually to also secure both the royalty and the developed oil property. The price paid was frequently so low as to be of questionable ethics even for the surface right acquired. On the other hand, the operator has supporting his hope of recognition the fact that large bonuses were paid for the mere right to drill on these lands, in addition to which he was compelled to expend vast sums of money for development purposes, and under the rules and regulations is compelled to pay the surface owner for the privilege of going upon the land. In many cases such payment to the surface owner exceeds the amount originally paid by the surface owner for the land itself. This mere right to drill acquired by the lease operator was sold to him under such circumstances as to bring prices much beyond the customary value of simalir oil and gas leases. They were purchased in the full light of publicity, and instead of having attached to them any stigma of unfairness to the Indian, they, on the contrary, were purchased at prices beyond which ordinary business prudence and the customs of the oil country would justify. Figures presented in Division III of this brief will show that in the aggregate the operators have suffered great monetary loss by reason of the high bonuses paid, and that the oil properties sold since 1916 will in the aggregate never pay back their cost to the producer. On one side of this contention we therefore have the surface owner, who paid insignificant sums, for which he received full value, and who now wishes to claim as an incident of such purchase the properties developed at great risk, cost, and loss by others, whereas on the other side are the oil and gas lessees, who have paid vast sums of money for the property, on which an extension is being asked. They will have nothing left, provided the extension is not granted, and will be compelled to leave at a loss, whereas the other class, provided the extension is granted, will still have remaining everything it purchased, except the fulfillment of the intangible hope that it might acquire properties developed at no risk to itself and at great expense to others.

Many of the purchasers of these surface rights are attempting to strengthen their position by masquerading under the magic words "home builders," to which words every heart is sympathetic. The purpose of the association of socalled “home builders" is, as a matter of fact, exactly the reverse of that which the name they have chosen would indicate.