PAGENO="0001" FEDERAL OIL SHALE PROGRAM ~~OG~3oS HEARINGS BEFORE THE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS UNITED STATES SENATE NINETIETH CONGRESS FIRST SESSION ON THE FEDERAL OIL SHALE PROGRAM FEBRUARY 21 AND 22, 1967 SEPTEMBER 14 AND 15, 1967 `I L4c2 c~ Printed for the use of the Committee on Interior and Insular Affairs US. GOVERNMENT PRINTING OFFICE 76~821 WASHINGTON: 1967 PAGENO="0002" CLINTON P. ANDERSON, New Meczlco ALAN BIBLE, Nevada FRANK CHURCH, Idaho ERNEST GRUENING, Alaska FRANK E. MOSS, Utah QUENTIN N. BURDICK, North Dakota CARL HAYD~N, Arizona GEORGE McGOVERN, South Dakota GAYLORD NELSON, Wisconsin LEE 1\jETCALF, Montana THOMAS IL KUCHEL, California GORDON ALLOTT, Colorado LEN B. JORDAN, Idaho PAUL J. FANNIN, Arizona CLIFFORD P. HANSEN, Wyoming MARK 0. HATFIELD~ Oregon COMMITTEE ON INTERIOR AND INSULAR AFFAIRS HENRY M. JACKSION, Washington, Cha4rman II JERET T. VERKLER, Bta~i7 lMreotor STEw.u~t FRENcH, CMef Counse' B. LEwIs REID, M~nor~ty (JOun8ei PAGENO="0003" CONTENTS HEARINGS Page February 21, 1967 1-73 February 22, 1967 75-128 September 14, 1967 129-275 September 15, 1967 277-485 STATEMENTS Allott, Hon. Gordon, a U.S. Senator from the State of Colorado-State- ment before the Antitrust and Monopoly Subcommittee 190 Barry, Frank J., solicitor, Department of the Interior 368 Bennett, Hon. Wallace F., a U.S. Senator from the State of Utah 52, 139 Cameron, Russell J., president, Cameron & Jones, Inc., Denver, Cob 423 Childs, Orb E., president, Colorado School of Mines - 442 Dominick, Hon. Peter H., a U.S. Senator from the State of Colorado 141 Douglas, Hon. Paul H., former U.S. Senator from the State of Illinois 362' Eckles, Richard, coordinator of natural resources, State of Colorado, as presented by Russell Cameron, of Denver 85 Fisher, Joseph L., chairman, Oil Shale Advisory Board to the Secretary of the Interior and president of Resources for the Future, Inc 75 Freeman, J. R., editor, Farmer and Miner Newspaper, Frederick, Cob 461 Hansen, Hon. Clifford P., a U.S. Senator from the State of Wyoming- Statement before the Antitrust and Monopoly Subcommittee 197 Hardy, Royce A., vice president, Duval Corp 421 Harrison, Hon. William H., a U.S. Representative in Congress from the Stateof Wyoming 148 Hartley, Fred L., president, Union Oil Co.; accompanied by Harold H. Stream 244 Hathaway, Hon. Stanley K., Governor of the State of Wyoming 51 Jones, Charles F., president, Humble Oil & Refining Co.; accompanied by GeorgeH.ShipleyandRaymondD.Sloan 22~ Jones, L. Dan, general counsel, Independent Petroleum Association of America 479' Kelly, John S., director, division of peaceful nuclear explosives, accom- panied by J. Keith Davy, Atomic Energy Commission 60 Kimball, Thomas L., National Wildlife Federation 482 Lynch, Daniel F., attorney, Denver, Cob 260 Mazzocehi, Anthony, citizenship-legislative director, Oil, Chemical, and Atomic Workers International Union, AFL-CIO 127 McDonald, Angus, director of research, National Farmers Union 122 Miller, Capt. Albert S., U.S. Navy (retired), former Director, Naval Petroleum and Oil Shale Reserves 9t1~ Mock, Byron, attorney, Salt Lake City, Utah 457 Moore, Capt. Howard, U.S. Navy, Director of Naval Petroleum and Oil Shale Resources; accompanied by Lt. Comdr. Hugh Crisp and Eugene Bowler 54 Pomeroy, Kenneth B., the American Forestry Association 455 Rampton, Hon. Calvin L., Governor of the State of Utah 52 SinclairOil&GasCo 472 Smith, J. H., Jr.; accompanied by Arthur S. Bowes, Jr., and Irvin Nielsen, Wolf Ridge Minerals Corp., Glenwood Springs, Cob 105 Smith, Spencer M., Jr., secretary, Citizens Committee on Natural Re- sources 452 Udall, Hon. Stewart L., Secretary, Department of the Interior; accom- panied by Under Secretary Charles F. Luce and Solicitor Frank J. Barry 5,,150 Wallich, Franklin, Washington legislative representative, tlnited Auto- mobile, Aerospace & Agricultural Implement Workers of America, AFL-CIO 100 Winger, John G., vice president, Energy Resources Division, Chase Man- hattan Bank, New York, N.Y - 312 Zn PAGENO="0004" Iv CONTENTS Winston, Morton M., executive vice president, the Oil Shale Corp., New York, N.Y COMMUNICATIONS Almen, G. D., Jr., Sinclair Oil & Gas Co.: Letter to Hon. 1-lenry M. Jackson, chairman, Interior and Insular affairs Committee, dated March 8, 1967~ Biemiller, Andrew J., American Federation of Labor and Congress of Industrial Organizations: Letters to Hon. Henry M. Jackson, Chairman, Interior and Insular Affairs Committee, dated- March 9, 1967 September 28, 1967 Chandler, Collis P., Jr., Rocky Mountain Oil & Gas Association: Letter to the Senate Interior and Insular Affairs Committee, dated September 14, 1967 Cimino, S. M., FMC Corp., Green Rivers, Wyo.: Telegram to Hon. William H. Harrison, House of Representatives, Washington, D.C., dated September 13, 1967 Clapper, Louis S., National Wildlife Federation: Letter to Hon. Henry M. Jackson, chairman, Interior and Insular Affairs Committee, dated September 14, 1967 Hamburger, Richard, Atomic Energy Commission: Letter to Mr. Jerry Verkler, Staff Director, Interior and Insular Affairs Committee, dated March 1, 1967 Justheim, Clarence, memo andreply Koolsbergen, H. I., president, the Oil Shale Corp.: Letter to Stewart French, chief counsel, Interior and Insular Affairs Committee, date~I February 20, 1967 Love, Hon. John A., Governor, State of Colorado: Letter to Hon. Stewart L. Udall, Secretary of the Interior Love, John A., Governor of Colorado, Rampton, Calvin A., Governor of Utah, and Hathaway, Stanley, Governor of Wyoming: Letter to Hon. Stewart Udall, Secretary of the Interior Meserve, F. A., Edmonds, Wash.: Letter to Hon. Henry M. Jackson, Chairman, Interior and Insular Affairs Committee, dated February 19, 1967 Penfold, J. W., the Izaak Walton League of America, Inc.: Letter to Hon. Henry M. Jackson, chairman, Interior and Insular Affairs Committee, dated September 13, 1967 Proxmire, Hon. William, a U.S. Senator from the State of Wisconsin: Letter to Hon. Henry M. Jackson, chairman, Interior and Insular Affairs Committee, dated September 14, 1967 Steiniger, E. L., chairman of the board, Sinclair Oil Corp.: Letter to Hon. Henry M. Jackson, Chairman, Interior and Insular Affairs Committee, dated March 7, 1967 ADDITIONAL INFORMATION 480 311 123 Comments on the proposed oil shale regulations 151 Executive Order No. 5327, withdrawal of public oil-shale deposits and lands containing same for classification, dated April 15, 1930 39 "Is the Mineral Locatable or Leasable?" by Russell G. Wayland, U.S. GeologicalSurvey 382 News release, Department of the Interior, dated January 27, 1967 1 Oilshale,proposedregulationsfor 41, 131 "Oil Shale-The Need for a National Policy," by David D. Dominick 201 Oil Shale Advisory Board, interimreportof 277 "Oil Shale Losing Out to Coal," from the Denver Post, August 31, 1967_~. 194 "On the Threshold of the Future: America's New Oil Shale Development Program," speech by Senator Hansen, February 2, 1967 28 "Proposed Regulations To Govern Oil Shale Leasing and Land Exchanges Announced," press release of the Department of the Interior, May 7~ 1967 39, 130 APPENDIXES 487 553 539 Comments on the oil shale regulations submitted by Senator Hansen Myers report for the Secretary of the Interior, U.S. Government, Wash- ington, D.C Oil-shale i~esource development program Page 388 124 126 484 221 149 481 71 457 127 92 143 128 PAGENO="0005" FEDERAL OIL SHALE PROGRAM TUESDAY, FEBRUARY 21, 1967 U.S. SENATE, C0MMIrrEE ON INTERIOR AND INStILAR AFFAIRS, T'Vas/tington, D.C. The committee met, pursuant to notice, at 9:40 a.m., in room 3110, New Senate Office Building, Senator Henry M. Jackson (chairman), presiding. Present: Senators Jackson, Moss, Nelson, Burdick, Allott, Jordan of Idaho, and Hansen. Also present: Jerry T. Verkler, staff director; Stewart French, chief counsel; James H. Gamble, professional staff member; and Darryl A. Hart, assistant minority counsel. The CHAIRMAN. The committee will come to order. This is an open, exploratory and informational hearing by the Senate Interior Committee on the development of oil shale, a great natural energy resource that is not now being utilized, and that is found in rich deposits in our public domain. While at this time there is no proposed legislation before us dealing with the subject, the Secretary of the Interior, on January 27 of this year, announced a 5-point action program to promote economic recovery of shale oil and associated minerals from the Green River formation in Colorado, Wyoming, and Tjtah. This hearing, while general in nature, will focus on this 5-point program, and without objection, I will direct that the text of the Secretary's press release of January 27 appear at this point in the record, together with my brief statement on the floor of the Senate on January 31 announcing these hearings in which I tried to out- line briefly some of the background facts with respect to oil shale. (The documents referred to follow:) ENews release from the Office of the Secretary, Department of the Interior, Tan. 27, 19671 FIVE-POINT OiL SHALE DEVELOPMENT PROGRAM ANNOUNCED Secretary of the Interior Stewart L. Udall today announced a five-point action program to promote economic recovery of shale oil and associated miii- erals from the rich oil shale resources of the Green River Formation in Colorado, Wyoming and Utah. It is estimated that known oil shales of the area con- tain the equivalent of about 70 times the present domestic proved reserves of crude petroleum. Steps leading to the program announced by the Secretary began in 1964 with the appointment of a distinguished group of private citizens to the Oil Shale Advisory Board. The Board's interim report, presented to the Secre- tary in February 1965, has been the subject of intensive and detailed review within the Interior Department during the past two years. The Secretary pointed out that mounting energy demands in the United States made it increasingly important to develop oil shale to the point where it can begin to make a contribution to meeting U.S. energy needs 1 PAGENO="0006" 2 FEDERAL OIL SHALE PROGRAM The Secretary explained that the five-point program will involve the fol- lowing: "Action to clear title to public oil shale bearing lands of the three-state area. This will involve withdrawal of oil shale lands from all mineral entry other than for oil and gas leases, the initiation of examination and contests to re- move clouds on title arising from oil shale and other mineral claims, and restoration of sodium to withdrawn status except where the Secretary spe- elfically finds that particular sodium deposits can be extracted without damage to the oil shale resource. Pending sodium preference right lease applications will be promptly considered on their merits. "A `blocking-up program' in which the Secretary will give consideration to ap- plications from private owners of scattered oil shale lands to exchange part of them for Federal lands of similar quality as to mineral and other physical char- acteristics. The purpose of these exchanges would be to permit some consolida- tion of private holdings which are at present too scattered for efficient mining operations. Under this program the Secretary will consider applications for blocking only where the applicant agrees to a time schedule and investment com- initments for the development of economic mining and recovery operations. Ap- plicants will also be required to agree to develop the blocked up lands in ac- ~cordance with the best conservation principles, both with regard to maximizing the mineral values to be recovered and to minimizing damage to the environ- ment. "As the third point of the Department's oil shale program the Secretary will announce procedures which will permit the Department to consider applications irom individual firms and copibinations of firms for provisional developmental leases of oil shale lands. Under this part of the program, it is contemplated that the Department will contract with interested parties for a variety of ap- proaches to the development of economic processes for the recovery of oil and associated minerals from shale. Applications for contracts would describe the process sought to be developed, a commitment of research and development ex- penditures, a time schedule within which these expenditures would be made, and the approximate volume and location of oil shale and associated minerals re- quired to support operation of a commercial plant if the research and develop- ment project is successful. Parties to such contracts will be permitted access to the necessary acreage of oil shale lands for testing purposes, but leases for larger tracts for commercial development will not be issued until the research and development contract has been successfully performed. Leases will contain firm assurances that a commercial scale plant will be constructed, and that good conservation practices will be observed in the commercial operation. "A fourth program will seek to enlist the Atomic Energy Commission and private capital with the Department of the Interior to find ways to retort the oil from the shale `in sitn. Underground atomic explosions will be researched as a means of fracturing deep deposits of shale, and making possible the retort- ing of the shale without ever bringing it to the surface. Such a program, if found technically and commerically feasible, would go far toward solving the difficult problems of protecting the landscape of the Green River Formation area from the scars of traditional mining and processing of minerals. The organic matter (kerogen) present in the rock formation known as oil shale is a `~olid that is converted to a liquid by heating. The concept of underground retorting is that the shale first should be broken into small pieces by a massive explosion. Thereafter heat would be applied to the broken shale, and the liquid oil pumped to the surface. "Finally, the Department will request funds for a broad program of research and investigation by the Geological Survey, Bureau of Mines, and Bureau of Land Management. Some of these research projects will involve close coopera- tion and joint participation with other Federal agencies, industry and public and private research facilities. Objectives of this part of the prorgam will include the development of more Information on the location, characteristics, and values of the oil shale and other mineral resources of the Green River Formation, and of better technology for resource development consistent with sound prin- ciples of conservation and environmental control. "A major concern in developing the oil shale program," the Secretary said, "has been to enunciate policies and procedures that will protect the public interest fully, and at the same time will o~er reasonable incentives to private capital t~ participate in an accelerated research and development program. PAGENO="0007" FEDERAL OIL SHALE PROGRAM 3 The publie interest requires `he said that in our efforts to develop the tech nology of extracting oil from shale, we write into every rule, regulation, contract, and permit affecting the public lands those terms and conditions that will- "Encourage competition in development and use of oil shale and related mineral resources "Prevent speculation and windfall profits; Promote mining operation and production practices that are consistent with good conservation management of overall resources in the region "Encourage fullest use of all known mineral resources; "Provide reasonable revenues to the Federal and State Governments. "We intend," the Secretary said, "to seek the broadest possible participation in the development of our oil shale resources. The public lands in the region, representing the largest untapped sources of hydrocarbon energy known to the world belong to all ot the people and must be used for the benefit of all the people." The Secretary emphasized that the contracts involved in Point 3 of the oil shale program will involve two distinct phases. The first phase, in which the contractor expends research and development funds, will require only small acreages of public lands necessary for research and development operations. The second phase, reached only when the research and development work has proved successful, will require acreages large enoug~a to assure an adequate sup- ply of oil shale and other minerals for a commercial operation of specified ca- pacity over an agreed term of years. Total Federal holdings of oil shale lands approximate seven million acres, but these holdings vary widely as to the richness and thickness of the shale. "I do not underestimate the difficulties that will attend all five parts of our program," the Secretary said. "For at least 50 years legal, economic, and tech- nical difficulties have stood in the way of efforts to develop the Nation's oil shale resource. To bring this program to fruition may take more than a decade, but if we are to realize the potential of our vast oil shale resources we must under- take intensive efforts now." Although oil shale deposits are found in several States, the richest deposits are found in the Green River Formation of Colorado, Utah and Wyoming. It is in this area where the Department anticipates the greatest interest under Point 3 of its program. The amount of oil that can be recovered will depend upon technology and economics. The Green River deposits extend over about 16,000 square miles and include several geologic basins. The total thickness ranges from a few hundred feet to more than 2,000 feet and the potential oil yield ranges from a few gallons to more than 65 gallons per ton of shale. The Federal Government has title to about 72 percent of the total oil shale acreage with potential yield of at least 15 gallons per ton; this amounts to about 79 percent of the estimated equivalent oil in place. Some of this acreage, however, is the subject of mining claims not yet adjudicated. The remaining acreage is owned by the States or private in- dividuals or companies. The Bureau of Land Management will today submit an application for a with- drawal order and the Department will begin to take the other steps necessary to clear title to the Federal oil shale lands. Proposed regulations setting forth the terms and conditions under which the Department will administer the oil shale program should be promulgated within sixty to ninety days. [From the Congressional Record, Jan. 31, 19671 OIL SHALE HEARING Mr. 3~AcKsoN. Mr. President, for the information of Members of Congress and other interested persons, I announce that the Senate Committee on Interior and Insular Affairs, which has initial legislative responsibility for development of the mineral resources of the public lands of the United States and for mineral production generally, has scheduled a public hearing on oil shale for Tuesday, February 21. Last Friday, the Secretary of the Interior, Stewart L. Udall, made public a proposed five-point action program for economic development of the vast deposits of shale oil and associated minerals in the fabulously rich Green Rivei~ Formation which underlies millions of acres and thousands of square miles in parts of Colorado, Wyoming, and Utah. PAGENO="0008" 4 FEDERAL OIL SHALE PROGRAM it is on this proposed program that the Interior Committee's February 21 hear- ing will center, but at the same time we will welcome new, additional ideas and suggestions, as well as be glad to receive information and views with respect to development of this truly tremendous potential source of energy within our country that the Nation will need for its security and economic growth during the next few years. Some idea of the extent of the Green River Formation reserves may be gath- ered from the statement by the then Under Secretary of the Interior at our com- mittee's informational hearing on oil shale held May 12, 1965, that high-grade oil shale deposits there are computed at 600 billion barrels. Known world recover- able reserve of petroleum from conventional sources are only about 300 billion barrels. Much of these latter sources are beyond our borders, available to us only at the will and by the grace of other nations, anj over perilous ocean routes. But more than twice (the known conventional reserves of petroleum of the entire world are in the shales of a single area in the heart of our own country. The former Under Secretary, John A. Carver, who is now a member of the Federal Power Commission, described the Green River Formation as "the world's largest known resource of hydrocarbons." By far the richest and most extensive of these oil shale deposits are in federal- ly owned lands. The problems of developing these publicly owned resources have been greatly complicated by the relatively recent realization that the oil shale is associated with dawsonite, an alumina-producing ore, and other min- erals. The five-point program of the Secretary of the Interior faces up to the difficul- ties, legal, technical, and political, of the situation. It would permit develop- ment in (the time-tested, historic American tradition of free, private enterprise with careful controls and oversight to protect the public interest. Mr. President, this matter is of such interest and importance that I ask unani- mous consent that the text of Secretary Udall's announcement of last Friday be printed in full at this point in the RECORD, and on behalf of all of the members of the Committee on Interior and Insular Affairs, I invite any interested Mem- bers of the Congress or the public to attend and to participate in our February 21 hearings. There being no objection, the announcement was ordered to be printed in the RECORD, as printed above. The CHAIRMAN. It will be recalled that on May 12, 1965, in an open hearing this committee went into the physical facts respecting oil shale in detail and also discussed some of the legal and economic prob- lems. These hearings have been printed, and I will direct that they be incorporated, by reference, in today's hearing. Incorporated by refer- ence means, of course, that we will not go to the expense of reprinting the text, but that the material in it will be considered by the com- mittee as a part of its present record. Thus, there will be no need for us this morning to take the time to go in detail into the physical facts concerning oil shale. These phy- sical facts have not changed in any substantial degree in the less than 2 years since the 1965 hearing, except possibly in the recognition of dawsonite and other minerals associated with the shale. Rather, we can concentrate on the policy questions involved. We have an imposing list of witnesses, headed by Stewart TJdall, the Secretary of the Interior, the agency of the executive branch of the Government that has initial responsibility for the public lands of the United States and the development of their mineral resources. Secretary Udall has just returned from an extensive survey trip over seas, and has another commitment this morning in addition to our hearing. This is the reason why I agreed to open this hearing a half hour earlier than our usual time, and I ask that the members of the committee withhold any statements that they may wish to make until after we have heard the Secretary. PAGENO="0009" FEDERAL OIL SHALE PROGRAM 5 The Chair might announce that there have been submitted a num- ber of statements by Senators, Congressmen, and Governors and other interested persons. These statements will be made a part of this hearing record Mr. Secretary, we are delighted to have you. Do you have a pre- pared statement? Mr. UDALL. Yes, sir. The CHAIRMAN. You may proceed in your own way. STATEMENT OP HON STEWART L UDALL, SECRETARY OP THE INTERIOR, ACCOMPANIED BY UNDER SECRETARY CHARLES P. LUCE AND SOLICITOR PRANK L BARRY Mr. TJDALL. Thank you very much, Mr. Chairman. I do have a prepared statement. I would like it to appear in the record. In fact, I will read it in toto in a moment. I would like to make a few pre- liminary remarks that do not appear in my statement. The first thing I should like to say is that in developing and im- plementing an oil shale policy, it has been very plain for some time that the committees of the Congress and the Congress itself must ultimately be not only our overseers in formulating the policy but our partners as well. It is already clear to us that some legislation will be needed and I will discuss that in a moment, but in any event, the magnitude of this resource is so great that this committee would be derelict if it were not intimately interested in the evolution of this policy. I had a fascinating experience, Mr. Chairman, earlier this month in seeing an area of the world I had not seen before. I spent nearly 2 weeks in the Middle East and I was in some of the countries that have tremendous reserves, proven reserves, of petroleum. I was told in Saudi Arabia, for example, as the officials there showed me the Gar- war field, and in Kuwait, where I viewed the Burgan field from tht~ air, that these two single fields, which are merely part of the devel- oped area, have greater petroleum reserves than the total reserves of the United States. You can understand this did not make me feel too optimistic for the future of my country, except when I recalled that the one petroleum reserve in the world that is larger than those of the Middle East is to be found in the oil shale deposits in the West- ern States of this country Of course, the one thing that is lacking-I think it is important to make this point-the one thing that is lacking at the present time is development of the technology. The resource is there. It awaits the work of the scientists and the researchers in developing a tech- nology to make this resource available for the use of the Nation. I want to make one other general point to the committee, since I know that some have criticized us for moving too slowly in develop- ing an oil shale utilization policy. Indeed, it was 2 years ago this month that the oil shale advisory committee, which I had appointed nearly 2 years prior to that, presented its report and we made it pub- lic. Although there were divisions of opinion, I felt the report was extremely useful. And I still feel that way, because I think, like a great searchlight, it illuminated the whole landscape. It illuminated PAGENO="0010" 6 FEDERAL OIL SHALE PROGRAM all of the policy alternatives, and I will assert it as my own present judgment that we have taken into consideration every one of the state- ments that were made, every one of the policy alternatives that were outlined. I can say to you very honestly here today that the policy that we have developed and which we hope to evolve has benefited greatly from the searching analysis that was carried out by this Oil Shale Advisory Board. It does seem to us, and it has seemed to me from the beginning, that we would rather go a bit slow and be sure that our policy was sound, that it would stand up under any kind of scrutiny or criticism, than move too fast toward an ill-considered policy. The confusion arising from a poorly conceived development effort could easily set back the progress of an overall program. So I want to make these two general statements, Mr. Chairman, more or less to provide a setting for what I am going to say in my prepared statement, and I will now proceed to it. Two years ago this committee performed a very useful public serv- ice by conducting a seminar on the basic nature and character of the national oil shale resource. By providing that forum you were able to throw considerable light on a subject that has perplexed both the public resource managers and our mining and energy industries for half a century. I do not think that any useful purpose would be served by repeat- ing what was said on that occasion. Rather, I have looked upon your current invitation as a request for a briefing on more recent devel- opments and our plans for moving ahead on this subject. Two years ago we had to confess a considerable amount of ignorance on how this resource could be developed under existing statutory standards with adequate protection for the public interest. In terms of an actual leasing program open to all corners on a long-term basis, there are still many unresolved problems. But we believe we have made good progress in analyzing the situation and in plotting a sys- tematic course that will aid in the development and utilizatioii of this valuable resource. The results of this effort are referred to in recent announcement of a five-point program. Some of the committee members and staff were briefed at the Department prior to release of our announcement. For purposes of review as well as convenience of other members, I shall like to summarize the essential elements of that program. First, we recognize that 50 years of uncertainty have given rise to legal questions about title to some of the lands involved. Prior to 1920, oil shale as well as conventional petroleum deposits had been locatable under the U.S. mining laws. Thousands of claims were flied on the Green River oil shale formation. Some of these went to patent in due course. Others were contested or rejected for failure on one ground or another to meet the standards of the mining law. But the vast majority have never been adjudicated to this day. Many holders assert the continued validity of their claims. On many of them, the Government is equally adamant that they are invalid and should be formally canceled. If the Government is right, the cloud on its title should be removed promptly so that development can pro- ceed with confidence; if the claims are indeed valid, then the holders are entitled to a prompt decision and a clear title. PAGENO="0011" FEI~ERAL OIL SHALE PROGRAM 7 One aspect of tins legal problem has already reached the courts Over 30 years ago the Department c'~nceled a number of oil shale minmg claims upon the ground that the claimants had failed to per form their annual assessment work In a very large majority of cases the claimants accepted the Department's determination and did not appeal One cise, howevei, was carried to the Supreme Court by at~ aggiieved claimant That Court held that failure to perfoim assess ment work was not ground for c'incellation In the last few years application for patents to the old canceled claims have been made The Department iejected these applications upon the ground that the clarnis had been canceled in the earlier proceedings and, since the claimants had not appealed, the decisions were final and their validity could not be reexammed A short while after this decision, action was brought in the TLS. District Court for Colorado and that court has recently rendered a judgment which will be entered this week, reversing the Department and ordering the reinstatement of the applications for patent. Since a large number of old claims will be affected by this judgment, we anticipate that further appellate review will be sought. It is also the feeling of our legal staff that a large percentage of the old claims will not meet the tests of the mining law on other counts, such as discovery, proper monuinentation of claims, and other essen- tial requirements. These, too, will be brought to a prompt test, first through administrative adjudication, then through review in the courts if claims are canceled and the claimants seek judicial review. A second form of encumbrance has developed since your last hear- ings which I want to emphasize particularly this morning. As your record shows, the oil shale has been withdrawn since 1930. There was no desire at that time to forestall other mineral development consistent with protection of the oil shale. Accordingly, oil and gas and sodium leasing has been permitted. There are many oil and gas leases on the oil shale lands and their development and operation have not disturbed the oil shale deposits. The important Wyoming trona mining indus- try, for example, has also developed in the oil shale area. A dozen sodium prospecting permits were issued by BLM a few years ago. Explorations were made and dawsonite, a sodium aluminum carbon- ate, and naheolite, a sodium carbonate, were found. It appears, how- ever, that they are a part of and intermingled with the oil shale and that they cannot be developed without disturbing and possible dam- aging the oil shale. It is thought by many that the oil shale lands, although withdrawn, are open for location of deposits of metalliferous minerals under the mining law of 1872. A very large number of claims estimated to exceed 7,000, have been filed for dawsonite during calendar year 1966-on the theory the aluminum in dawsonite is locatable. For the most part dawsonite and nahcolite exist as an integral part of the oil shale deposits; they cannot be removed without removing the shale. The claims based on presence of dawsonite must he resolved before the oil shale resources can be made available for extensive develop- ment. We have taken steps to resolve these title questions on a broad front. In the first place, application has been filed and published and is in PAGENO="0012" 8 FEDERAL OIL SHALE PROGRAM process of consideration for the complete withdrawal of these lands from all forms of mineral entry or leasing, with the exception of de- posits which are found by the Department to be extractable without damage to oil shale. Second, the Director of the Bureau of Land Man- agement has initiated action on pending sodium lease applications to expedite decision on whether the lea~e~ should issue F hird, a series of immediate tests of the validity of dawsonite mining locations is being instituted. This task of clearing away a half century of legal underbrush will be time consuming, vexatious, and difficult. But it is a necessary pre- requisite to the long-term development of the lands in question. In this connection, there is one way in which the Congress could be very helpful in simplifying the task. As you know, there never has been and there is not at this time any general requirement that notice of a mining claim be filed with any Federal office or agency. It has been the view, Mr. Chairman, of my own people for many years that this is a major defect in terms of procedure, in terms of the pubIi~ interest, in terms of the responsi- bility of those making claims under the old mining laws, and this defect can be cured. Recordation in the land records of the county is all that is required and a search of those records must be made to determine whether Federal public lands are so encumbered. Our search of county records may not disclose the present address of the locator, nor assignments of the claim that he has made to third parties. We think that such in- formation should also be a part of the land records of the Bureau of Land Management and that the locator or claimant should bear the burden of such a filing. Undoubtedly there are hundreds of thousands of mining claims that have been recorded but have, in fact, been abandoned. Not only for the purposes of the oil shale program but for orderly administration in general, we urge that a recordation statute be enacted requiring that all past claims be recorded within a reasonable period-2 or 3 years-and that all future claims or transfers be recorded currently. Assuming widespread publicity, this seems a reasonable and equitable way to eliminate a tremendous volume of potential work for our Federal land managers. And this is work that can only delay the forward movement of the oil shale development program. I want to underscore that. We have proposed such recordation legislation in the past and very shortly will transmit a new proposal for your consideration. I would say, because I know many of the members of the committee are very familiar with the law that was passed a few years ago with regard to scrip and the land claims thereunder, this is precisely the proce- dure the committee followed. In our judgment the result was very successful and we think if there is any one single stroke that the Congress could take to enable us to eliminate the underbrush and get on with the development, that this is the most immediate step that will be helpful. The second element of our program involves the blocking up of oil shale properties into efficient development units. One of the explanations advanced for failure to develop priv~tely owned oil PAGENO="0013" FEDERAL OIL SHALE PROGRAM 9 shale deposits is that they are either too scattered or not well located for mining operations. You may recall from the map winch was re- produced in your 1965 hearing record that the private lands in the richest oil shale area of Colorado tend to stretch out into very narrow ribbons-usually following stream valleys. And this is understand- able because that is where the old homesteads were made and the patents were issued. Similarly, it would assist Federal management of public land oil shale deposits if isolated pockets of private land could be eliminated. Accordingly, we are proposing to undertake an extensive program of exchanging public for private lands with the primary objective of assembling manageable blocks for development purposes. Let me emphasize the development aspect of that objec- tive. We fully intend, as a condition of the exchange, to require the private party to make definite development commitments. We do not propose to assist in the assembly of valuable properties for the purpose of speculation or hoarding of the oil shale resource. It goes without saying, of course, that such exchanges could only be made on a value-for-value basis. Given the nature of this resource and our comparatively limited knowledge of it, this necessarily means that we would exchange only oil shale lands for oil shale lands. And I should like to add that the BLM have a long history, we have a lot of the tools that have been developed over the years for this type of exchange and I am confident, although we want to proceed very carefully on this front so that we protect the public interest, that we can carry out a rational blocking-up program that will involve the traditional type of exchange of lands of equal value to block off holdings. The central core of this effort to get oil shale into the mainstream of the American economy is aimed directly at development of the resource itself. Two years ago we advised you that the Mineral Leasing Act of 1920 was the only authority that existed for this purpose and that we had doubts about its adequacy. We now believe, however, that section 21 of that act, as amended, is broad enough to permit the Department of the Interior to receive and act upon a num- ber of the types of proposals contemplated by point 3 of our five-point program. Accordingly, we are proposing to open small areas of oil shale lands to development on a test basis. Each area must be large enough to accommodate a prototype of actual production conditions. But in terms of the total area of Federal holdings, the acreage committed will be relatively small at the outset-the most limited that will accomplish the purpose, naturally. In essence we are proposing sev- eral development contracts, giving high priority to variety in the methods and techniques to be employed. Depending on performance results and what is learned from these contractual arrangements, the development contract may ripen into a lease for full-scale production on terms which must also evolve out of experience. It is not possible at this time to specify how many such contracts will be made or their precise terms. Much will depend on industry's response to our invitation to submit applications. Our objective is to get the broadest kind of industrial participation, either through a number of individual companies or through joint ventures. In every PAGENO="0014" 10 FEDERAL OIL SHALE PROGRAM instance, however, certain minimum requirements will be included in the public interest. A commitment of research and development expenditures, a time schedule for conducting such a program and access to resource and technological data will be among these. Heavy emphasis will also be placed on maximum recovery and development of all the minerals present-sodium and aluminum as well as shale oil. And this again, is a new factor that has entered the picture since 2 years ago. In our public announcement of this development program it was indicated that implementing regulations would be prepared in 60 to 90 days. This appears, I was told by my people yesterday, to be on schedule, at least to the extent that such regulations will be released for public comment within that period. And we fully intend to follow our customary procedure. We will put out regulations for comment rather than as final rules, and the States involved, industry, any citizen may submit their views on these proposed regulations. We will then finalize them and then we will be ready to proceed and to receive applications at that point. If, after careful study of the development proposals submitted by industry or at any time thereafter, we conclude that new legislative authority or criteria are advisable, we shall recommend to the Con- gress the specific legislation required to achieve our objectives. And I would think just to give the committee, Mr. Chairman, a time scale here, that probably within, let us say, 5 or 6 months we should be able to form firm judgments on this. If we feel that additional legislation is needed, because we do want to move ahead with this program, I can assure you that we will recommend quickly what legislation we feel is needed and give the committees an opportunity to give it thorough consideration. Similarly, we will analyze the proposals received for the blocking of private lands. If the broad authority of the Taylor Grazing Act proves inadequate to permit such transactions or conditions essential to their acceptance, we shall likewise seek whatever further legisla- tive authority is needed. The Department's approach to extend research and development on oil shale includes two essential elements, both aimed at increased knowledge on the nature, extent and technology of the resource and its effl~ient recovery. The first of these, identified as point 4 in the announced program, is aimed at the ultimate objective of an in situ retorting process. In- terest in such a technique stems from both efficiency of extraction and concern for the landscape and other conservation values. This effort will require close collaboratiou with the Atomic Energy Commission and, ideally, substantial input of private research capability as well. It also involves extensive preliminary work in core drilling, labora- tory analysis and selection of test sites broadly representative of the total oil shale area. As presently conceived, the full development of this research program and its evaluation will cover the better part of a decade and an investment on this Department's part of about $15 million. On a far more general front, research and investigations must be conducted on other aspects of shale oil recovery as outlined in our PAGENO="0015" FEDERAL OIL SHALE PROGRAM 11 point 5. These will include alternate mining methods research, deeper insights into the basic composition and utilization of shale and shale oil, associate minerals, and related economic and environmental studies. A research program outline and prospectus has been de- veloped for a 10-year effort involving a total budgetary requirement of $86 million, exclusive of the in ~tu investigations and experiments. We offer this prospectus for the record, with the caveat that it has not been reviewed by the Bureau of the Budget. This, in general, then, is the direction we propose to take on this very important resource issue Much thought and deliberation has gone into the subject over the past 4 or 5 years. I think, therefore, that I should summarize for you some of the philosophical or policy considerations that have gone into the development of the proposed program. Here we have a resource which has lain dormant for nearly half a century since its value was first recognized. The question has been asked in many quarters, "Well, why should we bother with it now? Why not let it lie until it is required to meet a real shortage in our energy requirements? Wait until it can demand a premium price!" in other words, keep it as a reserve and hoard it. In our judgment there are at least two very good answers to this challenge. In the first place, let us concede that we are in no immediate danger of a national petroleum shortage. Our known and potential reserves, according to present technology, are adequate to carry us into the next century at or about present costs. However, as a recent interdepart- mental energy study reports, oil and gas now supply 73 percent of our total energy requirements, and we have the potential for developing additional reserves through advanced discovery and recovery tech- nology. Conventional sources of these fuels represent the smallest known and potential reserves, worldwide, of all the fuel resources. Thus, unless we are to be forced by possible shortages within half a century into radical dislocation of our heating, power generation and transportation systems, we must begin now to plan in an orderly way for substitute sources. We have the lead time to plan the development of shale oil on a systematic, economical and sound conservation basis. To me the very best argument for moving ahead in a slow deliberate way now is that if we begin now, not in the haste of some national emergency but out of the desire to plan an orderly, rational program, then I think we have the time to do it right: do it right in terms of protecting the long-term national interest, do it right from a conservation point of view, and do it right in terms of our traditional approach *0 resource development. Past history tells us that the difficulties are formidable. Prudence therefore dictates that we utilize the time available to us now to phase shale oil into our long-range energy forecast. The potential in good quality deposits in Colorado, Utah, and Wyoming is on the order of 600 billion barrels of shale oil, or about twice the world's proved petroleum reserves. Deferral of development measures now could easily result in the need for a "crash" effort later with attendant in- creased costs and sacrifice of adequate conservation planning to protect the total resources of the region. PAGENO="0016" 12 FEDERAL OIL SHALE PROGRAM The second, and equally important, reason for moving ahead at this time is that we want the time and experience to fix the policy guide- lines that will govern the long-range development of this fantastic energy resource. In this regard, I have established the following policy objectives which we hope will be an inherent part of our ulti- mate oil shale leasing practices: (1) To encourage competition in the development and use of oil shale and related resources; this has been the great principle used to develop our resources up to this point. (2) To prevent speculation and windfall profits; and I think, on the basis of nearly half a century's experience under the mineral leas- ing act, that we can do this. It will reflect on us as administrators if we fail. (3) To promote operation and production practices that are con- sistent with sound conservation management of overall regional re- sources; and may I comment here, this very region that contains the oil shale has in my judgment some of the finest summer and winter outdoor playgrounds in the entire Nation, and the trick here is can we develop the mineral resources without spoiling the wilderness, the ski areas, the water, the trout streams, and all the other fantastic re- sources of nature that are present. This again, is the challenge that we face and we want to see if we can do the one without damaging the other. (4) To encourage fullest use of all known mineral resources; all the mineral resources that are present, in other words, to optimize or maximize the recovery of the resource. (5) To provide reasonable revenues to the Federal and State gov- ernments. Mr. Chairman, we do not underestimate the magnitude of the task that lies ahead. Past experience tells us that the hurdles are numerous and formidable. We know, for example, that there are economic and policy issues far removed from our area of responsibility that could have a direct bearing on development trends. One of these, the ques- tion of tax treatment, for example, can be readily identified as a seri- ous factor in determining oil shale's competitive standing in the energy community. Another question to be faced is the perennial one in the West: wa- ter requirements and supplies and I cannot underscore this too much. Research to date demonstrates that the production of crude shale oil itself-the processes of mining, crushing, and retorting-requires relatively little water. Refining of shale oil is comparable to pe- troleum refining in requiring large amounts of water for cooling and steam generation. Municipal requirements for the communities needed to support a large shale industry would also be comparable to other communities of the same size. Our most recent estimates, de- veloped in 1965, indicate that a 50,000-barrel-a-day shale oil opera- tion would require 950 acre-feet of water per year for all industrial processes through refining. At a million barrels a day, the annual water requirement rises to 20,000 acre-feet. Community requirements would, of course, be additional and substantial. We are equally aware that the objectives and procedures recently announced do not carry us very far into the development process. PAGENO="0017" FEDERAL OIL SHALE PROGRAM 13 But we think we have taken steps in the right direction We made a beginning and that is the important thing. We may be unsure of the ultimate rules for routine and unrestricted leasing, but we have started machinery in motion to gather the knowledge and experience for that long-range goal. This, it seems to me, is the important development at this stage of our knowledge. I have indicated some of the areas where further legislative policy may prove necessary or useful. Based on the attention this commit- tee has devoted to the subject, especially in recent years, we have great confidence that such legislative proposals will receive understanding and informed consideration. In this regard, I would like to emphasize again the ultimate power of Congress to deal with matters affecting the disposal of public land resources. As administrative custodians and technical experts, it is our duty to manage the lands and learn all we can about their values. But we can dispose of those values oniy as the representatives of the whole people dictate or authorize. I should like to end with a point that I began with, that I think that the best way to prevent us from getting too far off the right road is for there to be keen congressional interest and sharp congressional oversight as we move ahead. We welcome this hearing and any further hearings that this committee may want to carry out. The CHAIRMAN. Thank you, Mr. Secretary, for your excellent pres- entation of the oil shale problems and of your program. With reference to your last comment, the Chair wishes to announce that today's meeting in all probability will be merely the beginning of hearings on this complex, important subject. It is obvious that there will be a continuing need for this committee to keep informed con- cerning this program. I am delighted, and of course, really not sur- prised, that the Secretary welcomes this approach on the part of the committee. After the witnesses who have asked to testify have been heard, we will leave the record open so that others may submit statements or comment on the testimony. When we conclude this morning, we will reconvene tomorrow at 10 o'clock. It is not a holiday as far as the U.S. Senate is concerned and I hope that that will not cause any great inconvenience for those on the outside, including the fourth estate- fourth and fifth estates. Mr. Secretary, with reference to the first point, I have never under- stood the requirement that with respect to entry on the public domain under the mining law, why recordation of claims is made only locally, in county offices. It would seem to me that what should be required is that the recordation be made with the Department of the Interior, Bureau of Land Management, and a copy of that be recorded in the county pursuant to local law where the property is located. Such dual recordation appears logical. Mr. UDALL. Mr. Chairman, I want to dwell on this because this is one immediate thing that can be done to help us move forward. I think from the statement that I read you can see what a morass we have. We merely can guess at the number of these dawsomte mining claims that were filed last year. The old mining laws of 1872 were based on the experience of that time, where the man went to the county recorder in the county in which the claim was located and filed PAGENO="0018" 14 FEDERAL OIL SHALE PROGRAM his claim. This may have made sense at that point but today it seems to me there ought to be a responsibility along with the rights that a mining claimant has. There ought to be some responsibility and one of the responsibilities ought to be to let the public and the country and particularly the management agency know what claims he has lo- cated and where. When claims are transferred or assigned, the fact should also be recorded in the Federal land records. As it is, the whole thing is a complete thicket that we cannot pene- trate with any exactness. If we are to move forward to be able to block up lands, to be able to lease lands, it is essential that we have a mechanism to get the facts and discover what we need to do in order to clear title or to issue patents, whichever the case may be. I cannot see, myself, how the mining claimants could feel that there is anything onerous or unreasonable or burdensome about this pro- cedure and I call the attention specifically to the action this committee took a few years ago on the scrip lands. There, in effect, you said all holders of scrip step forward. Let us know what scrip you have, make your claims, and this was done. I heard no claim at any time from anyone that this was inequitable or unreasonable and what we are proposing is essentially the same thing here. But I think this is really the beginning point because these legal problems we must tackle promptly to clear the way for action. The CHAIRMAN. When you are dealing, of course, with unpatented mining claims you run into some unique legal problems. My recollec- tion is that in many States-it is true in the State of Washington- an unpatented mining claim is, in fact, personal property and, there- fore, it is involved in the filing of requirements with reference to chattel mortages and other documents of the sort, whereas in other States a nonpatented mining claim is considered real property. So you can really get into the underbrush trying to find out where the records are, depending on the State law. Am I not correct in that regard? Mr. IJDALL, Yes. The CHAIRMAN. I won my first law case on the question of an un- patented mining claim. That is how I remember it. The party made the mistake of filing the mortgage as a real estate mortgage and, of course, failed to comply with an affidavit of good faith on chattel mortgage. I remember that point quite well. Now, how long do you think it is going to take to remove some of this legal underbrush? I realize it is difficult to speculate, but what additional help, if any, will you need in the Department to undertake this rather massive effort to clear title? Mr. UDALL. Well, Senator, I think the term, the figure of speech, we have been using here of "underbrush" is a very good one. We are almost like a farmer approaching a large tract of land and he can get started if he can clear away the underbrush. Whether you are talk- ing about blocking up lands, whether you are talking about these initial development leases, we have got to clear an area away before we begin. Of course, the logical beginning place, where our people should concentrate their efforts at the outset, should be those places where development has the greatest promise. We want to make develop- PAGENO="0019" FEDERAL OIL SHALE PROGRAM 15 ment agreements at the most logical places in terms of the opportunity for technology, in terms of the location of the resource, and so logi- cally we should begin at those points to clear away the mining claims so we can lead to some of the others later. And the whole forward movement of this, it appears to me at this point, will move just as fast as we can clear away claims and get our leasing techniques perfected The CHAIRMAN. In connection with the blocking up program which is point No. 2, I do not envy your task in trying to ascertain the value of the property to be exchanged. Now, this phase is going to require, of course, a lot of core drilling, I assume, and extensive surveys by the appropriate agencies within the Department of the Interior to make sure that the exchange is fair and equitable and just, so as to prevent a situation in which there can be the accusation of an unequal exchange. Mr. UDALL, Well, because of the tremendous values here, Senator, I think you are correct. We are probably going to have to refine and elaborate upon our land exchange techniques. This may involve a type of drilling or other mineral analysis that we would not normally do because the values are so tremendous. But if one follows the gen- eral assumption that you are going to have what we would call value for value exchanges, and if the technology of exploration enables you to ascertain what values are, you can make an exchange without fear or favor. One of the things that any Secretary of the Interior blanches at normally is a land exchange. He always wants to know whether the values are equal and ofttimes when a controversy arises we have as many as two or three appraisals if it is surface land values that we are talking about. So I want you to know I am very wary on this and it is one of the things that I and my predecessors have learned, that you better know what the values are when you start making the exchange or you could have a giveaway of resources which may lead to and certainly merits a public outcry. The CHAIRMAN. The techniques by which you determine property values beneath the surface, of course, have not been fully perfected, I take it. There is a lot yet to be learned. And this is an area that has to be handled very carefully. With reference to the fourth point, Mr. Secretary, I am concerned about the course of events in our Plowshare program. You know, we recently canceled one of the tests and I believe Mr. Kelly may be testifying on that, But I expressed concern at the time of the test ban treaty about its possible effect on the development of the peaceful uses of atomic energy. I have always felt that there is a tremendous opportunity for pushing this program forward through Plowshare, and possibly Mr. Kelly can address himself to that problem when he is called upon to testify, unless you care to say something at this time, Mr. UDALL. I want to make two points, Senator. It is our jU(lgment that the potential-at this point no one can describe it with precision- but the potential for using contained underground atomic explosions to enhance oil shale recovery may be very great. We do not know yet. This may be the key. This may be precisely what is needed to make the £n situ process feasible. PAGENO="0020" 16 FEDERAL OIL SHALE PROGRAM I think the committee should know that we are already taking one initial step in this area, using atomic energy for peaceful uses with regard to oil and gas development. Three weeks ago Dr. Seaborg and I signed a contract with the El Paso Natural Gas Co. In northern New Mexico, near the Colorado border, we are going to carry out next fiscal year this Operation Gasbuggy project. I want to describe it to the committee very briefly because I thing it is important. This is an area in what is called a tight gas formation. Because of the nature of the rock formation, the amount of gas that is recov- ered is limited to about 10 percent. The calculation is that by making an underground nuclear explo- sion, which I need not describe, and I am not an expert on anyway, that you will enhance the recovery to 70 to 80 percent. If this proves to be useful in certain types of formation, we may make a fantastic increase of our natural gas reserves by using atomic energy as a recov- ery device. This is a thing that everyone has talked about, dreamed about, and so on. Now, in terms of oil shale, if Operation Gasbuggy works, then the next big step is what is being called Project Bronco. This would be an attempt at some carefully chosen place, probably at the edge of the oil shale deposits, to determine whether, by using an atomic device, you can fracture the oil shale to permit the in situ process to work. So it will not surprise us at all if-we are not speaking positively on this-but it will not surprise us at all if the linkage of atomic energy and oil shale development proves to be one of the keys to rapid devel- opment. The CHAIRMAN. I do not think there is any question, but based on the views of some of our experts in this field, there should be a tremendous opportunity to further advance this program. The many, many tests the we are conducting underground for weapons develop- ment, of course, have enormous peaceful applications and will be extremely useful in connection with this program. It will be necessary for me to leave the hearing at this time. We have a meeting of the CIA watchdog committee. There are a few problems there, also. I will ask Senator Moss to take over and chair the meeting for the balance of the morning. Senator Moss (presiding). I want to ask one question, Mr. Secre- tary, about this process of blocking up. There are, of course, a good many school sections out in this area of oil shale deposits, such as in Ford Township in my State. School sections are not encumbered by mineral entry as a general rule. Is it going to be possible to block up through use of school sections and get into this area sooner, so that we might have some oil shale development, rather than, go through the long involved process you spoke about of getting titles cleared on a lot of this land? Mr. TJDALL. Well, certainly. It so happens that the Senator, in his own State, has been through exchanges involving other minerals and we have successfully done this. I believe I am correct-and my Solici- tor will stop me if I am not-the normal laws concerning State land selections and the new selection process as well can apply as far as PAGENO="0021" FEDERAL OIL SHALE PROGRAM 17 the lands that the State may have in the oil shale region. If the State wanted to block up its lands for purposes of a development project of its own, it would seem to me within the limits that we have been discussing here of the equal value rule that this* should be pos- sible; yes. Senator Moss. You were discussing earlier the desirability of hav- ing a filing with the Bureau of Land Management (BLM) of mineral entry and, I believe we are all in agreement on that. Do you envision also that there should be a recording of assessment work so that you can keep that filing up to date, as it were, within the records of the BLM? Mr. TJDALL. Well, the Solicitor says the Federal Government cannot take advantage of failure to do assessment work because of a Supreme Court ruling. Therefore, this particular item of assessment work would not be one that we would require information on. But I as- sume there are other provisions. It is not simply a notice provision but it would require them to pro- vide data so that we could ascertain the essential facts regarding the claims, Senator Moss. I may have some additional questions but I would like to call on my colleague from Colorado, if he has any questions. Senator Allott? Senator ALLOTT. Thank you. Mr. Secretary, first of all, I want to express my appreciation to the chairman of the committee and to you both for opening up this recordation problem. As you know, in the past few years I have had several bills-I will comment later about two of them-looking iii the express direction you are moving now. Perhaps we are at last devoting to this area, in which I have been vitally interested ever since my coming to the Senate, the neces- sary effort to try and resolve some real and complicated problems. Only the complete amateur can tell us off the top of his head how to solve these, because they are extremely complicated. I know that my other colleagues have questions and you have to be out of here at what time? Mr. UDALL. 11 :40, Senator, at the latest. Senator ALLOTT. You have to leave at 11:40? Mr. UDALL. Yes. Senator ALLOTT. All right. I may have other questions after these, but we can attend to them. I was pleased that the chairman announced that we would perhaps have other hearings and give in- dustry an opportunity to make whatever comments they might care to about what is brought out here this morning. Perhaps I can get at this most expeditiously by starting on your announcement of January 27. In your first suggestion, it con- tains four elements, as I see it. The withdrawal of oil shale lands from all mineral entry other than for oil and gas. And so this would hold in abeyance the development of dawsonite and nahcolite and other similar minerals at least for the time being. The initiation of examinations and contests to remove clouds on title. Now, perhaps I should ask here-the Department of the In- terior is presently trying to clear title to oil shale lands. Do you intend to expedite this program or merely continue at the same pace? PAGENO="0022" 18 FEDERAL OIL SHALE PROGRAM Do you intend to institute blanket court procedures? And, third, what is your personnel problem with respect to this? Mr. TJDALL. Senator, we do intend to quicken the pace of action and as I have already indicated, the one way I think the Congress could help us to quicken it would be with some kind of recording statute. We are going to need additional personnel. We are plan- ning to add additional personnel, both examiners to hold hearings an persons to acertain factual data, and so on. The solicitor might comment on the specific steps that are en- visioned here, but it is obvious that; we do need to move at a more rapid pace. We also need very judiciously to select out and get into the courts as quickly as we can test cases that will apply across the board. Now, this does not mean that a particular case, once the rule of law is laid down, of and by itself immediately-as I am sure the Senator will understand, he being a lawyer-demolishes all the claims. But it will certainly make it a lot easier for us once we have the basic law laid down to work with counsel representing claimants and to dispose of those eases that have no merits. Senator ALLOTT. Would you like to comment, Mr. Barry? Mr. BARRY. Only that our present pace in the oil shale contest is pretty well set by the complications of the cases at this time. We have been 2 years bringing the contests to trial. They have been continued several times. They were recently continued until June. I do not know whether the last continuance was at our request or at contestees' request. I have been informed that we were ready for trial. The contests had been set to start in April. But these are extremely difficult cases. These are the old pre-1920 cases involving the issue of discovery; whether oil shale is a valuable mineral in the terms of the 1872 act. This question necessarily requires an enormous amount of technological work. But it has to be done once by us and by the claimants. We have selected claims to raise the issue with a design to test the very best claims so that if it turns out that they do not support a discovery, the rest of the claims would fall according to some sort of domino theory. Although, of course, each hasto be contested before it is cleared. With respect to the claims recently located, it is our misfortune perhaps in this matter hut otherwise the good fortune of the States of the Colorado River Basin, that we have a good snowpack. We have not been able to send our people out to inspect the lands to determine the facts and whether a particular claim justifies a contest. The practice is to send a geologist or an engineer to inspect the claim, to report on the facts and, if a contest is filed, to testify at the trial. Most of these recent claims that are in the Piceance Basin, we are informed, are now covered with snow. We expect to get people out there as early as we can this spring. Senator ALLorr. Well, then, I assume from your answer-and you correct me if I do not state this correctly-that what you are trying to do is draw some definitive lines from a legal standpoint by which you would hope to include in various classes of cases or classes of decisions a large number of claims so that the ones which have to be individually determined later would hopefully fall into a determina- tion that has already been made in one or other of these classes. PAGENO="0023" FEDERAL OIL SHALE PROGRAM 19 Mr BARRY That is correct, Senator, but, of course, every claimant is entitled to his day in court. We anticipate that we will certainly have less of a problem later on if, having made this huge preparation at the very beginning, we have laid the groundwork for a decision of all of the cases. Senator ALLOTT Now, is it your intention to commence these con tests from your department or wait until they arise ~ Mr BARRY We intend to initiate the contests Mr. IJDALL. Senator, let me give you one very good example which I think will make the point to the committee. I am holding here a specimen or core of oil shale from this richest area in the Piceance Basin. This is oil shale, It has intermixed in it probably 10 percent of dawsonite, but the two are completely intermingled. There is also nahcolite there, I assume. Now, all of these dawsonite claims that were made last year-min- ing claims, where they went out and located in the area on the assump- tion that although the oil shale had been withdrawn, that the daw- sonite was locatable-present a legal question as to whether, since the oil shale with withdrawn, you can locate, legally locate, a mineral that is intermixed with it. It may very well be, assuming that the geologi- cal conditions are the same, that once you get a basic determination of that question, most of these claims may prove to be ill-founded. Thus, if you decide one broad issue, you can resolve many of the claims in this class, This, I think, is the process that we are going to have to take initially with the big new group of claims that were made last year under the mining laws. Senator ALLOTT. Without in any way attempting to embarass you, have you asked for additional personnel for the purpose of clearing up this work, and what happened to that request? Mr. TIDALL. Senator, we could do this in one of two ways: either by shifting BLM or legal personnel from other areas and other func- tions into the Denver office, or we could ask for additional appropria- tions. I think it is likely that we will consider and use both alternatives. Senator ALLOTT. But you did not request any additional personnel for this coming year's budget for this purpose, as far as you know? Mr. BARRY. With respect to the Solicitor's office, Senator, we did not-- Senator ALLOTT. I am really talking about the Solicitor's office, Mr. Barry. Mr. BARRY. All right. We just-well, incidentally, we always ask for more personnel to carry the load that accumulates, particularly in the Denver regional office which will carry this load because almost all of these claims, with the possible exception of those in Utah, will `be administered out of the Denver office. We asked for additional personnel there but not specifically for this, just simply to handle the increased work load, because for the last ~ years we have had three men in the Denver office, 100 percent of whose time is being spent on the oil shale contests now pending and in a recent court case. What I have said applies only to the old pre-1920 cases. It appears, however, that we are going to have to ask for more lawyers for this work and we are also suggesting that the Bureau of PAGENO="0024" 20 FEDERAL OIL SHALE PROGRAM Lands Management ask for more technical people to inspect claims, to make title searches and to find the individuals who are the claimants. We do not know the addresses of claimants or where they are or who has title to any particular claim. Finally, we think BLM should have more hearing examiners to preside at the trials. At present there are only seven hearing examiners to hear all BLM cases and there is only one assigned to the pending contests. So far he has been considering only motions to dismiss or motions to post- pone and that sort of thing. Senator ALLOTT. I do not know whether this would run contrary to the executive department policy but would it be possible for you to submit to this committee by a separate statement the extra per- sonnel that you think would be required and their categories, Mr. Barry, for the purpose of expediting this entire program? This has been with us for a long time, not only in this administration but in the two preceding administrations, and I think it would be helpful to this committee if you could. Mr. UDALL. Senator, I think we can provide the committee wtih this information and 1 think this will also give us an opportunity to really focus on what we are going to need during this calendar year to get the right level of effort underway so that we are tackling the main problems that are there and in a vigorous fashion. Senator ALLoTT. Thank you very much. (The information requested is as follows:) The Department has made a thorough analysis of the additional manpower and funding required to carry out a full-scale investigation and adjudication program to clarify title to lands encumbered by outstanding mining claims. The total first- year impact of such a program, by Bureau or office, is as follows: Manpower Funds Bureau of Lsnd Management 1 Bureau of Mines 2 Geological Survey 2 Office of Solicitor Total 49 4 3 11 $610, 000 100, 000 75, 000 120, 000 67 905,000 I Exclusive of $120,000 currently programed for contest actions already pending, BLM also forecasts a gradual reduction in this activity to 16 man-years and $200,000 annual cost by fiscal year 1973. 2 Exclusive of one man-year and $25,000 in Bureau of Mines and 2 man-years and $50,000 in Geological Survey which can be diverted from related work to claim evaluation. These requirements are being assembled with the detailed justifications which the Bureau of the Budget will require for a supplemental appropriation requests. Senator ALLOTT. Now, moving on to your second point, which is the blocking up program, I have just two short questions. Am I correct in my understanding that this is going to be an exchange on an equiva- lent basis dollar for dollar, considering all of the mineral content? Mr. UDALL. I think this is the way it would have to be. Senator ALLOTT. Or just the shale content? Mr. TJDALL. No. It would have to be all mineral values. Senator ALLOTT. And in the case of the piece of shale that you just held up, where the dawsonite or nahcolite may not be acceptable or recoverable, what would you do in a situation like that? Mr. IJDALL. Well, we are going to have to develop, it seems to me, Senator, a scientific and sound technique for ascertaining values, prob- PAGENO="0025" FEDERAL OIL SHALE PROGRAM 21 ably from cores with core drilling. It may be that if someone wants to block up, that we would impose on the person who wants that bene- fit, the task of having them do the drilling and furnish us with the in- formation. But since there are these other mineral values present, we cannot dismiss them. So that probably the exchange program, the blocking up program-I am just giving you my own layman's horseback opinion here-is going to work best where you are trying to block up lands in an area that have similar mineral values. Senator ALLOTT. The point I wished to bring out is that the prob- lern of blocking out oil shale as such is a relatively-and I underscore that word-simple problem compared with the problem of ascertain- mg values when you get into the questions of intermix dawnsonite arid nahcolite; correct? Mr. TJDALL. This is correct, and there is one other thing we might as well get on the table here, too, and that is the difference in the thick- ness of the beds. In other words, if you take a particular region, there may be a 600-foot thickness here and you move 3 miles down the road and it shrinks; that is obviously measurable and has to be taI~en into account. Senator ALLOTT. I think we brought all of this out at the hearing 2 years ago, the thickness of the beds, the depth of the beds under the surface of the earth, and also the richness of the beds. I think that is pretty well understood by everybody. Now, in this blocking up, what provision do you contemplate for permitting owners of the scattered land to evaluate Federal holdings to be received in exchange that you would have a mutual opportunity to core drill, for example? Mr. TJDALL. I think it would have to be mutual because otherwise you could not really appraise the values and it is the matter of ap- praisability that is the difficult problem. Senator ALLOTT. In other words, if a man owns a piece of land ~rou have no right to go on it per se to drill, and certainly he has no right to go on Federal lands and core drill without your permission, and you envision a mutual consent to ascertain values and the drawing of prop- er rules for this? Mr. TJDALL. That is right, and this is what we will cover in our reg- ulations, I would assume in the usual way. Senator ALLOTT. Well, I might say there is one exception to this. A man who owns an oil and gas lease in this area, and there are some, has the power to drill, but this would not apply to everything. Will the Department of the Interior permit the owners of the pri- vate acreage to select specific location of the land to be received in exchange? Mr. UDALL. Yes, that is probably the way the exchange process would work as we envision it, because the nature of the in 8~tV~ process and the nature of either underground or open pit mining will be such that a person or an owner may very logically want to assemble a con- tiguous tract that is mineable in the most economical fashion. Really economics determine many of these issues. Therefore, he will, if he has a series of claims strung up a particular valley, and that is where many of the patented oil shale lands happen to be, want to consolidate them into a much more contiguous unit where he can get the advantage PAGENO="0026" 22 FEDERAL OIL SHALE PROGRAM of large-scale economics. This is at least the sort of thing we have been talking about up to this point. We would expect him to come to us with his application, setting forth this as his main purpose, and say let us determine what the values are and see whether we can work out a blocking' up program that will enable me to make my holdings con- tiguous and sound in terms of an economical operation. Senator ALLoTT. Now, it is obvious that I am going to have to per- mit my colleagues an opportunity here, and I just want to get into one other phase. I am sure you will recall that I have introduced a recording statute for the last several years which, however, applied only to oil and gas leases. Your Department has rendered an unfavor~- able report upon this, upon the basis that it would cause an excess of work. Now, of course, if we follow your suggestion with respect to mining, and I frankly believe it is a valuable suggestion, it would cause even more work. But with the modern facilities that we now have, in the ELM in Denver, for example, could this not be taken care of in both respects? Mr. TJDALL. Well, Senator, there has probably been some rethink- ing on our part. Maybe you should press us again on your legisla- tion. I do not recall what the issue was- Senator ALLoTT. I will be happy to. Mr. TJDALL (continuing). On this particularly but I think we have to be logical and consistent and if a recording statute in terms of mining claims makes sense, maybe the other does, too. I will indi- cate to you at least on my own part an open mind at the moment on that. Senator ALLOTT. Thank you. Now, to move on to the last thing I will try to cover this morning-unless there is more time left-on your point 3, the provisional development of leases for Federal oil shale lands, I presume that these developments that you speak of, these research developments, would go along the lines of the con- sortium which is now operating at Anvil Points. Is that correct? Mr. TJDALL, Senator, this is a sound assumption in part. We have the feeling that we ought to be open at this point, at the outset, to all manner of different proposals within limits, of course. It is our feeling that the consortium approach is probably superior and we have tried to hint strongly in our press statements and otherwise to the companies who are obviously interested that we do think the consortium approach is superior, for a number of reasons. No. 1, it makes it considerably easier for us as was the case at Rifle to have a consortium of companies so that we are not having to single out a particular company and everyone else then feels we favored them for some reason or other. Also, because of other minerals that are present, it appears to us logical that not only petroleum and gas companies but aluminum com- panies, mining companies that are interested in sodium and in other minerals be included. Particularly in terms of trying to develop a whole new technology, having companies with different experiences and with a different technological background will make it possible to move faster and have all the answers rather than getting only part of the answers as a result of a research or development project. PAGENO="0027" FEDERAL OIL SHALE PROGRAM 23 Senator ALLOTT Well, with respect to this particular matter of de velopment, I would like to respectfully call your attention to Public Law 87-796, which is the law which transferred the reserves back from the Navy-which you recall very well-dated October 11, 1962, and also to what Senator Mansfield described as one of the most com- plete legislative records. He said: Mr. President, I wish to state that in my ten years here I have never seen as good a legislative history as this one developed in connection with any other bilL This is the best legislative history in regard to any bill that has ever been before us on the Senate floor. Mr. President, I hope the bill will now be voted upon. And, Mr. Chairman, I would like to ask permission, not that the complete legislative record be inserted here but that by reference the legislative record which permits the research facilities at Anvil Points be incorporated by reference which would be taken from the Congres- sional Record of September 27, 1962. The reprinting would be ex- cessively expensive. Senator Moss. Without objection, it will be incorporated into our hearing record by reference. Senator ALLOTT. Now, one final point on this, and I am quite con- cerned about this. After you enter into a research and developmental concept with either a company, an individual, or a consortium-and I ought here to say that one of the great things in my opinion that grew out of the Anvil Points arrangement was that no person or any com- pany was barred from that research if they wished to put up their own share of the research, and I think this point should be emphasized and made clear-with large investments in research these companies have to have some assurance that they will obtain some right to produce shale oil. I offered a bill last year to try and clear up some of these claims by putting on a statute of limitation, in effect a statute of limitations, upon times to file, and one of the prominent economists of this coun- try accused me during the course of the campaign last year of trying to give away all the billions of barrels of Federal oil shale, and I am so happy that you have come here this morning and made an honest man out of me. I appreciate it. But after you entered into such a consortium, or such a research contract, we are going to have to get at the basic thing of how do we enter into a fair lease afterward? In other words, if Mr. Jones-I was going to say Mr. Smith but I see him sitting down here-if Mr. Jones does enter into a developmental lease with you, is it likely that this will produce anything substantial or that you will get a sub- stantial number until he and other people know what sort of a lease arrangement they can make with you subsequently? Mr. TJDALL. Senator, this is a very crucial question and has to be answered very directly. We do envision, I think we have to envision, that no company, no group of companies, no consortium, whatever you have, is going to make massive investments in research and de- ~velopment unless this ripens into a project whereby they can recover the investment that they made in research and development, I think we consider that the two go together and this is nothing new. It has been done in the Middle East in a way; it has been done with tar sands development in Canada. You could have a two-stage lease, as it were, PAGENO="0028" 24 FEDERAL OIL SHALE PROGRAM an initial lease for research and development with performance con- ditions, and if the people perform and do their part under the con- tract, that then it ripens into a lease for large scale development. This, of course, is the thing that we are going to be trying to perfect, both to protect the public interest, to prevent windfall, and at the same time to permit development to move forward. Senator ALLOTT. Do you think it would be feasible, Mr. Secretary, to hold separate hearings here in this committee on just the lease aspect to try to develop and explore all of the problems and perhaps get some definition and delineation of the directions we ought to go on this, eliminating all the other problems that Mr. Barry has gotten grayhaired about? Do you not think this would be advisable? Mr. UDALL. Senator, I do at the right time, and I want to indicate to the committee what I think the right time would be. I think this is the most controversial, crucial question. I personally feel very strongly that the Oil Shale Advisory Board and every member on it made a very big contribution in focusing on this as the controversial question. As a consequence, I think the whole problem is illuminated and we at least know what some of the alternatives are. Once we have put out our regulations, once we have had comments from industry and from others, once we have then made our regula- tions final, and we are moving on into the development of the new leasing techniques, if they are new, I think this would be a time when it would be useful to us to have the committee get into this picture. One thing I have learned in my 6 years as Secretary, if I may say so, is that when I have a matter that is highly controversial before me, rather than take it off into the back room and decide it, that the more public discussion there is the better, and the more opportunity you have to discuss alternatives and let everybody be heard, the less chance there is that you are going to make a mistake in terms of the final decision that you come up with. Senator ALLOTT. I agree with this and this is exactly the reason that I suggested that it might be feasible for this committee to start this study now because I cannot conceive of us developing a rational leas- ing policy in less than 2 or 3 years, or maybe longer, and I simply close at the moment with this one point, that I cannot envision any great developmental research over there. Perhaps those who already own substantial blocks might do this, but generally I cannot envision any great steps forward in this until we have formulated some basic leasing policy. Mr. Chairman, I have taken a lot of time and I hope my colleagues will forgive me, but we are slightly interested in this in my own State, as you are, and Senator Hansen is, and I will retire with the oppor- tunity to come back. Senator Moss. Thank you. Is there a depletion allowance granted on oil shale, Mr. Secretary? Mr. TJDALL. Well, I found that in my press conference 3 weeks ago this is a more involved question than you would think and it is one that I do not pretend to be expert on because it is an area where the Treashry Department and not my own, has the responsibility. I think that my Solicitor can give you some kind of answer on this. But we have not at this point gone into this in great detail because this is really PAGENO="0029" FEDERAL OIL SI~ALE FRQOI~AM 25 a separate, very important question, but one which we have not had to address ourselves to up to this point. If you want an answer I think---- Senator Moss. Could you respond to that, Mr. Barry? Mr. BARRY. Mr. Chairman, the present allowance for depletion on oil shale is 15 percent. of the value of the shale. This is a low value and, of course, necessarily a very small sum of money in terms of the value of oil. I think that the chairman of the House committee introduced a bill either last session or the session before asking that the Congress change the depletion allowance to apply to the value of the shale oil as it comes from the retort, and to increase the allowance from 15 to 27½ per- cent. With just that explanation you can see the disadvantage which oil shale development may have. Not only ~is it a lower percentage but it is taken at a stage in the operation when the value of the commodity is much lower than that of conventional petroleum. Senator Moss. Do you look with favor on the proposal of the House committee which would, in effect, equalize the depletion rate between liquid petroleum and petroleum derived from shale, Mr. Secretary? Mr. TJDALL. Well, Senator, I want to be quite frank with you on this. We have not really addressed ourselves to this problem. It is a question that I do not think at any time you are going to see a De- partment of the Interior take a position. I think we would have to sit down with the Treasury people, with the Budget people and others to develop an administration position on this question. We have not had to do so up to this point and at some point I am sure we will. Senator Moss. In your testimony, Mr. Secretary, you discussed the amount of water that might be required in producing oil from shale but I do not think you made any reference to the problem of water pollution. To what extent would we be involved with the pollution problem? Mr. UDALL. Well, this question, Senator Moss, is very much to the point. One of the major rivers in the country, as this committee well knows, that is in serious thouble today is the Colorado River. Much of the oil shale lies in the Colorado River Basin. We have problems of shortage. We have upcoming problems of water quality and, I think, my Department will be derelict if we do not see to it that whatever ultimate plans are developed, the quality of water that comes off these watersheds is not diminished as a result of oil shale development. I think we can achieve this but I think we ought to be very aware of it at the outset. And there are many different methods and ways of seeing to it that we do protect the water quality of the region. But I think we ought to have this as a major objective just as we have the development of oil shale as an important objective. Senator Moss. Thank you. Senator ALLOTT. Mr. Chairman, would you yield to me for one question? Senator Moss. All right. Senator ALLoTP. Mr. Secretary, you are aware that there is pend- ing S. 932, introduced by myself and for my junior colleague, Mr. PAGENO="0030" 26 FEDERAL OIL SHALE PROGRAM Dominick, which provides for changing the point of application of the depletion allowance to the end of the retorting process and which~ does not change the depletion allowance. If you are not aware of that, I call your attention to it because I think it should be macie a part of the record. I beg your pardon. This was in the 89th Congress and I will have a bill in this Congress. [Committee Note: The bill in the 90th Congress is 8. 1068] Senator Moss. I want to give my colleagues an opportunity to ask questions of the Secretary before he must leave and his time is limited.. So I will ask them to direct questions now that they want to have the Secretary answer, if that is possible in the time left and we will try to get the answers before Mr. Udall must leave. Does the Senator from Wisconsin have any questions a1 this point? Senator NELSON. No questions. Senator Moss. The Senator from Idaho? Senator JonuAN. Yes, thank you, Mr. Chairman. Mr. Secretary, my State is not directly involved here and I shall be brief and my questions will be of a more general nature. You are having difficulty, obviously, in tearing away the legal underbrush that is involved here and it is understandable. Apparently you are not ~etting too much help from the courts. One Supreme Court case found that failure to perform assessment work was not ground for cancellation by the Federal Government. Did that not set you back a good deal in your clearing away the legal underbrush? Mr. UDALL. Well, I think I would have to say honestly that it did, Senator. However, there are other very vital grounds that can be asserted and I think the most important thing is to get the basic law laid down. I thi~nk getting these court tests, getting the basic deci- sions by the appellate courts, if that is necessary, is urgent. Once we can do this, I think that it will move much more rapidly and our l~ask really, as Senator Allott pointed out, is to carefully select out the 4ight test cases so that we can get the case law made that will govern the whole oil shale region. Senator JORDAN. What in the opinion of the Department constitutes a valid oil shale claim now? Mr. BARRY, A valid claim for oil shale would have to have been located prior to February 25, 1920, the date upon which the Mineral Leasing Act became law. Since that date oil shale has been available only under the Mineral Leasing Act. The claim would have to be supported by a discovery of oil shale within the limits of the claim aAd the evidence of such a discovery would have to be of such char- a4ter as would induce a prudent man to spend his money and his labor with a reasonable prospect of developing a valuable mine. The bound- aries would have to be marked, the location notice recorded in the county recorders office, and the claim otherwise maintained in accord- ance with law. You touched a moment ago on the question of assessment work. Prior to 1920 the Department of the Interior, the Government, did not have the power to cancel a mining claim for failure to perform annual assessment work. Section 37 of the Mineral Leasing Act states, PAGENO="0031" FEDERAL OIL SHALE PROGRAM 27 however, that oil shale is subject to disposal only as provided in the act except as to valid claims in existence on the date of the act and thereafter maintained in compliance with the laws under which ini- tiated. One of the requirements of the 1872 law is performance of annual assessment work. Accordingly, in the 1920's and the 1930's, the Department inter- preted the statute to permit the Government to contest and nullify claims for failure to perform assessment work. The case you referred. to was decided in 1935. The Supreme Court held in that case that the Secretary could not nullify a claim for failure to do assessment work. Of course, that was a setback because thousands of claims had been contested on that ground in the 1920's and 1930's. U.S. Dis- trict Court in Colorado has recently held that the Supreme Court de- cision meant the Department has no jurisdiction to cancel claims for failure to do assessment work. Thus when, 30 years after the deci- sion was made in other cases, no appeal having been taken, an applica- tion for patent is filed, the District Court held patent could not be denied on the ground that the claim was cancelled years ago. The District Court said it was beyond our jurisdiction to cancel the claims and, in effect, that the cancellation proceedings were totally void. The court held that the applications for patent are in good standing and should be processed as ordinary applications for patent. Senator JORDAN. 1. would be interested, and I think it would be help- ful for the record, to know what percent of this oil shale resource is. privately owned or constitutes valid claims? What percent of the resource is under cloud of title for one reason or another, some legal- istic entanglement involved? And what percent is totally devoid of any controversy vested in the Federal Government? Mr. UDALL. Senator, the rough estimate we have been using, and~ of course, until one can define with more precision than we can today what the quantities and values are, this is a rough estimate, is about 80 percent in Federal ownership and 20 percent in private ownership.. Senator JORDAN. You are talking about land area now? Mr. UDALL. No; we are talking about oil content. Senator JORDAN. Oil content. Taking into account the richer and. poorer and- Mr. UDALL. That is right. Senator JORDAN (continuing). Taking the quality of the lands into account. All right. There is a great area in here of no man's land still involved in legal controversy. You have given me 20 percent recog- nized private ownership, 80 percent Federal. Is there not an area in here that is controversial? What per- cent is in doubt? Obviously, the ratio would have to come off of one. or the other of these allocations. Mr. TJDALL. Well, Senator, I think maybe I ought to be more precise~ I ought to provide you with a written answer to this later if that is all right, Mr. Chairman. Senator Moss. Yes; it may be supplied. Mr. UDALL. But there are many reasons why the questhn cannot be answered with real precision. One of them `is the very fact of the recording statute that we lack. We do not have, we cannot gather PAGENO="0032" 28 FEDERAL OIL SHALE PROGRAM all the information. But just to give you one example, however, the richest, thickest oil shale beds are the Piceance Basin in Colorado and fantastically rich in ores. This is the area where all these dawsonite claims were plastered over it in 1966. So as of a year ago there were some claims that were in dispute but this was an area that was con- sidered almost entirely Federal. Now there is a cloud over it. We think the cloud is a small one but the claimants probably think it is not. So I suspect the answer is going to be that much of the 80 percent is in one way or another involved in legal dispute. Senator JoRDAN. Thank you. Thank you, Mr. Chairman. (The information requested is as follows:) The question regarding the ownership status of oil shale lands would probably be answered best by reference to the Report of the Oil Shale Advisory Board of February 1O5. The Board stated that approximately 72 percent of the total oil shale acreage is in Federal ownership, and the remainder is in private or state ownership. The amount of land which may be classified as oil shale land depends in large measure on the criteria which are used to determine whether land is or is not oil shale land. The criteria used by the Geological Survey require that land contain a 15 foot vertical section of oil shale or a richness of 15 gallons of kerogen per ton before it can be classified as oil shale land. On that basis the questions may be answered in terms of percentages of the total acreage of oil shale land as follows: Psrcent ~rivate and State lands 28 ederal lands: No mining claims 20 Mining claims (all types) 52 TotalFecleral 72 Total 100 Since the question was posed in terms of percentages of the "resource" rather t an acreages of oil shale, it should be noted that the percentage of the oil shale esouroc which is encumbered by mining claims is considerably larger than the ercentage of the total oil shale acreage covered by mining claims since many of t e recently located claims are situated on the richer and thicker portions of t e oil shale basins. Senator Moss. The Senator from Wyoming. Senator HANSEN. Mr. Chairman, on February 2 I made some re- arks on the floor of the Senate during which I outlined some of the r sults of the rather intensive research I have made with respect to oil s ale and the need for its development in our country. I think these f ets would be pertinent to the committee's present inquiry, and I s bmit them for the record. The CHAIRMAN. Without objection, they will be received and p inted in the record at this point. (The statement and information referred to follow:) Oi~ THE THRESHOLD or riu~ FUTURE: AMmucA's NEW OIL SHALE DEVELOPMENT PROGRAM ~sfr. HANSEN. Mr. President, this is the first time that I have asked for per. mi~sion to speak on the floor of the U.S. Senate. As one of the most junior me~n of this great place, this will be my maiden voyage, and I beg the indulgence of you, Mr. President, and of those Senators who are here listening to me. PAGENO="0033" FEDERAL OIL SHALE PROGRAM 29 Yet, it is perhaps not inapprOpriate that a new Senator should be speaking about a new industry that it itself as green as grass. Also, since I come from Wyoming-along with my colle~tgue, the distinguished senior Senator from our State, and my distinguished colleagues from Colorado and Utah-I do claim a par- ticular and a personal interest in the subject of my first Senate speech. Today, Mr. President, I would bring to the attention of the Senate, and I would hope to the attention of the world, the dramatic events that have taken place in the last several months leading to the development of a great new industry for our country~ I am speaking of oil sb~ales and of other; highly im- portant minerals that have been found In conjunctiob with these oil ~ So far, these gigantic deposits of oil `shale have lain in the gr~eund~ ~h~rO t~ey have been of benefit to no man. Some `experimentation haa been e$,riied on but these experiments have been spotty and inconclusive. Over 70 ~ercent of these oil shale deposits lie on Federal lands and they have been withdrn~wn ~from ~ le~asing or development since 1930. The withdrawal of these lands by R~eeulive Order 5327 has so far prevented private enterprise from exercising its initiative, in developing these great mineral resources. Last Friday, the Secretary of Interior, Stewart L~ Udall~ announced a five- point oil shale development program. Point 3 `of that announcement is the most important, for there Se~retary Udall promised-within 00 to 90 days-~-to, issue the administrative details of leasing procedures. The Secretary indicated that at the present time be contemplates a two-stage program broken into a research' and development phase and then finally a fully Operational phase. Private industry, just as we here in Congress, will be awaiting the Department of the Interior's details on the proposed leasing program.' The private sector of our country has awaited such decisions for a long time. Throughout this waiting period, some 30 to 40 years, the private sector has always demonstrated that It possesses the necessary components for a successful development of any particular resource. Today, just as many years ago, our private enterprise sys- tem is ready with investment capital, with a basic technology, with management and marketing skills, and most importantly with men and Women-all of which amount to a vast storehouse of innovative power necessary for a concerted devel- opment effort. My ifiterest here today is to see that pi~ivate enterprise has not waited in vain. My interest is to help define the terms, if I can, b~ which private enterprise may properly bring to bear' its expertise in resource development. Before I am finished I would hope to point out to `the Senate, if but briefly, the great national and international importance of' these resources, Once this importance is realised, I believe we will find near unanimity in the view that development should proceed as quickly and as efficiently as possible. The best means With which to meet those ends will, Of course, be the nub of the forth- coming discussion over th~e Department of the Interior's proposed adininistra- tive regulations. I believe that such discuSsion is clearly within the purview of the legislative branch of our Federal Government. I have called upon the very able and dis- tinguished chairman of the Senate Interior and Insular Affairs Committee to schedule hearings at the earliest opportunity on this matter. The junior Sena- tor from Utah has also made such a request and hearings are now tentatively scheduled for February 21. I am hopeful that the Senate will assume the leadership in asserting and protecting our national interest in the forthcoming development of this great new industry. Let me discuss, now, in more specific terms, those aspects of this development which are of national and international concern. ~irst, we should discuss in more detail the nature of the resource itself. SeCond, I would like to discuss aspects of national security. Third, I would like to discuss the relationship between foreign trade and foreign aid and the unique position which this oil shale resource plays with respect to each. Fourth, no discussion of oil shale development would be complete without some men- tion of the balance-of-payments problem. Last, I would like to discuss the role of government in the development of this resource. In the weeks, months, and years ahead, the Federal Congress, the executive branch of the Federal Government, and State and local governments must all be prepared to play an important part In furthering this developmeti~t. 76-8Z1-(~7-3 PAGENO="0034" 30 FEDERAL OIL SHALE PROGRAM THE RESOURCE First, then, let me discuss the resource itself. In terms of sheer size the oil shales of Wyoming, Colorado, and Utah stagger the imagination. By some estimates there are 1.5 trillion barrels of oil located in the Green River formation of Colorado alone. It has been estimated that 280 billion barrels of oil could be recovered from the richer Colorado formations by using present technology. Compare this to the other known reserves of crude oil: 31 billion barrels in the United States. Suffice it to say that the oil shales of Colorado, Wyoming, and Utah represeilt the largest untapped source of hydrocarbon energy known to the world. The potential value of shale oil is indeed staggering. Recoverable oil in the shale deposits of the Green River formation has been valued in the trillions of dollars. On October 22, 1965, the then Senator Paul Douglas introduced a bill in the Senate to provide for the retirement of the national debt, "through royalties from the rich oil shale lands owned by the Federal Government." The Illinois Senator stated then that the oil shale lands in public ownership "are so vast and so valuable as to provide royalties sufficient to pay off the entire national debt when they are developed." Then, just last year, Mr. Douglas offered a new proposal, "shale oil for the lamps of learning." This provided that the royalties from oil shale would not only pay off the national debt but also be used to finance a great new national education program. I cite these figures and hypothetical proposals to show how indeed vast this national re- source is. But these cited instances point up the basic reality that it does no good to talk of this resource in terms of barrels of oil or in terms of dollars of national debt magnitude. To do so is unrealistic because the resource re- mains in the ground to this day and the task is still before us. It is up to us in the Government to assist private enterprise in translating those figures from mere figures into dollars. It is up to us to assist in developing a technology which can transform oil shale into shale oil. Only then will this resource be of benefit to this Nation. Fortunately, we are much closer to an economically feasible, utilization of this great resource than ever before. Significant discoveries have been made ithin the past year of a heretofore little known mineral called dawsonite. awsonite is an aluminum carbonate and, if preliminary tests which have been ecently conducted by private industry live up to the expectations which we ow have, this new mineral may be a new and leading source of alumin~nr l~ he years ahead. In addition, great quantities of another mineral, naheolite, hich is a sodium carbonate, have been found in conjunction with the Green iver oil shales. So without going into further detail on the experimental phases of these arious new minerals, I would only say that it may be, and I emphasize may, ~hat we have turned the cost corner if all three of these minerals, aluminum the form of dawsonite, sodium in the form of nabcolite, and oil shale, can be developed in conjunction with one another. NATIONAL SECURITY Let me proceed to discuss, then, in further detail why development of both o 1 shale and dawsonite is required in the interests of national security. First, let me discuss our national energy resources and the part that oil must p ay in our total energy consumption. According to the U.S. Bureau of Mines t e United States was consuming about 55 quadrillion B.t.u.'s per year in 1964. I this were to be translated to an equivalent amount of oil consumed, it would e ual about 25 million bai~re1s of oil per day in 1965. The Department of the I tenor estimates that this oil equivalent will rise in 1980 to about 42.3 million. b rrels per day. While energy consumption estimates, even up to as short a time as 1980, are te uous at best, some eRperts are already claiming that the United States is n w, or soon will become, an energy-deficient nation. What this means is that the United States must rely upon the importation of energy in order to run its in ustry. This increasingly heavy reliance on imported energy is a major threat to our national security. Leaders in the petroleum industry have estimated th t at least 10 years' leadtime will be required in order fully to mobilize an oil sh le industry. This leads me to state that the trend toward growing energy PAGENO="0035" FEDERAL `OIL SHALE PIIOGRAkt 31 ~Mficiencies m~t be reversed just as soon as possible. This means that it is Incumbent U~Ofl `us to encourage oil shale development immediately. If we are to speak from a military point of view, the Department of Defense offers the most reliable and indeed the most startling information. The Depart- ment notes that jet fuel has accounted for almost all of the total energy require- ment increase with other products remaining on virtually a plateau. As of September ~2, 1966, the Department, speaking through J. J. Muir, stated: "In the `ast and more recent invitations for domestic jet requirements we are thiding it dimcult to get adequate coverage. While we know some of the reasoits for this, such as returne4 overseas procurement and increased com- mercial jet demand, we feel it is important and serious." Next, Mr. Muir points out that the military demand for fuels is not subject to spasmodic increases or decreases which can be tied to any particular military crisis. lie says: "First. is the ever increasing thirst for oil of our new weapons systems. For example, the First Cavalry Division now operating in South Vietnam consumes fuel three times that of a World War II or a Korean division. Also, the planes and ships of the Seventh Fleet operating off Vietnam, and the Guam-based B-52's supported by KC-135 reft~eling tankers, require many times the fuel of their predecessors. `Secondly, and the important key, is the fact that modern military forces, whether on alert, training, or combat, consume substantially the same quan- tities of fuel. "This is an interesting concept, one not generally understood, and certainly not a finite tool for future forecast-but the record over the past 17 years gives it a great deal of credibility. "As a matter of fact, we have seen nothing on the horizon that will significantly ehang~ the trend . . . Information available today indicates that with few ex- ceptions, military equipment will continue to derive energy from liquid petroleum and its products for some time to come. "And any phase out of petroleum consuming weapons system should be more than offset by new and larger hydrocarbon hungry systems. Examples of these are the C-141 transports now coming into the system and the super C-5 trans- ~ports scheduled for the 1970's." In a word, then, it is clear that the energy requirements of our Military Estab- lishment will be steadily increasing over the years ahead whether we be at war or at peace. A similar situation obtains with respect to aluminum. The United States consumes about one-third of the world output of bauxite. Bauxite, as you know, is our only source of alumina at the present time. Most significant is the fact that about 90 percent of the bauxite used in this country must be imported. Aluminum is an important key to the structuring of our entire complex econ- omy. The United States has a greater per capita consumption of aluminum than any other country in the world, and the price of that metal has an effect on the price of steel, copper, magnesium, zinc, titanium, fiberglass, plastics, and so forth. Fortunately, the price of aluminum has remained relatively steady over the past few years, but this happy state of affairs is not due in any part to any policy determinations by our Federal Government. The basic' fact remains that as long as we import over 86 percent of this raw material, we will have no control over the price of it. The copper market has not been so fortunate and we have witnessed the volatile rise or fall in copper caused in large part by political or military developments in foreign countries. Let me speak for a moment of the strategic imfortance of aluminum. At one time, the use of aluminum in defense materials was about 1 pound in 12. While present estimates of strategic aluminum are not available, it is clear that an adequate supply of aluminum must be readily available for the entire economy in order to hold the line on prices of other metals. Historically, a 1-percent decrease in the price of aluminum relative to the composite price of copper, lead, and zinc, h'as increased the consumption of aluminum by 1.4 percent. An increase in the price of aluminum caused possibly by action with- in the raw material producing country could unleash serious inflationary forces. A shortage of aluminum could create demands for other metals needed else- where in defense, and thus set up additional inflationary forces. Under wartime conditions, either a price increase and/or a shortage could occur. Improvements in the general capability of hostile submarines could PAGENO="0036" 32 FEDEI~AL OIL S1TAL~i PEOQ~~ well deny the United States the u~e of Caribbean sealaries. rfhi8 was the ex- perience in World War II Which led the United States to spend over $20 million on four plants in Utah, Oregon, Wyoming, and South Carolina. The Korean war caused the reopening of one of these plants-again at substantial cost to the taxpayer. In light of the fact that private ihdustry has presented us with the possibility of finding a domestic source for aluminum, it seems incumbent upon us to formulate a national policy Which would encourage the rapid development of that resource to the fullest extent. The possibility that a new source of aluminum has been found in `conjunction with a vast energy source makes the prospect even more attractive. We know that smelters are almost always placed near cheap power sources regardless of the distance involved. Now, we are Presented with the possibi1i~y of processing domestic aluminum materials near a source of domestic power. The social, economic, and employment opportunities stemming from such a possibility are indeed dramatic. FORRI~ TRADE AND FOREIGN AID Since the Trade Expansion Act will be subject to review by the Senate this year, it is particularly timely that we should point out the relevance of the possible development of an oil shale and aluminum industry to our foreign aid programs and* to our foreign trade agreements. Before the Senate decides whether it will renew the Trade Expansion Act, I believe that we should give careful scrutiny to the following points. The present administration has often stated its recognition, albeit in general terms, of the importance of minerals and fuels to this country. Only last Sep- tember Vice President HIJM]?HREY, in an address to the American Mining Con- gress in Salt Lake City, referred to minerals and fuels as "the essance of our economic growth and the spectacular rise in our living standards"; and he went on to say: "All of us then must be impressed with the achievements of the mineral industry in helping to lay the base for our national prosperity and our national strength." But such broad-brush treatment frequently overlooks the grave international implications of this country's practices and unhappy lack of policy with respect to the world's mineral resources. It is paradoxical in the extreme that our Federal Government in the past few years has seemed more concerned with the development of foreign resources than of our own~ The U.S. Bureau of Mines tells us that as of 1964, the total value of direct foreign investments of the United States was over $44 billion. Approximately 40 percent of this, or almost $18 billion, was in mining and smelting and petroleum, with petroleum alone being valued at over $14 billion. The petroleum industry maintains its traditional position as the largest single industrial category of U.S~ investment abroad. The impact of U.S. investment in foreign mineral and fuel producing coun- tries is, of course, tremendous. The Eastern Hemisphere has benefited greatly from this. Its share of the non-Communist oil industry has shown the followipg growth: Proven reserve: Percent 1955 1960 1965 80 Crude production: 1955 28 1960 1965 Product demand: 1955 27 1960 1965 The income after taxes of the Eastern Hemisphere oil companies was $1,3043 million in 1965. The total capacity is 14,200,00o barrels of oil per day of which 8,900,000 barrels of oil per day is produced by only seven companies. In addition to encouraging the export of American capital to increase reserves and production abroad, the United States, operating under the mandatory oil PAGENO="0037" FEDERAL OIL SHALE PROGRAM 33 import control program, brings significant quantities of foreign oil into this coun- try. Preliminary estimates provided me by the Department of Commerce show that about 900.7 million barrels of oil, valued at about $2,093 million, were im- ported into the United States in 1965. I ask unanimous consent that the complete Commerce Department estimates be included at this point in my remarks. Phere being no objection, the estimates were ordered to be printed in the Record, as follows: Petroleun~ importa, 1962-65 1962 1963 1964 1965 1 Crude Millions of barrels 411. 6 412. 8 438. 6 452.0 Refined Total Crude Refined Total ~ Crude Refined Average computed import price per barrel Domestic crude price at wells, per barrel 349. 2 362.4 388. 1 448.7 760. 8 775.2 826.7 900.7 Millions of dollars 2,012 717 1,025 757 1,080 793 1,212 881 1,729 1,782 1,873 2,093 Value p er barrel $2.45 2.05 $2.48 2.09 $2.46 2.04 $2. 68 1.96 2.25 2.97 2.29 2.93 2.25 2.92 2.32 2.9% 1 Preliminary estimates. Sources: Survey of Current Business, Statistical Abstract, Bureau of International Commerce. Mr. HANSJSN. Mr. President, turning from the question of imports for a mo- ment, we are confronted with a serious decline in our own domestic energy producing capabilities. In contrast to the phenomenal growth of the oil inOus- try in foreign countries, our domestic drilling for oil has 1~alleri off by 41 per- cent In the past decade and our oil finding success ratio is the lowest it has been in 30 years. Our ratio of dOmestic reserves has declined accordingly. In 1950, the ratio of reserves to production in the United States was 13.6 to 1. Last year, it was only slightly more than 12 to 1. This steady decline of exploration in this country has reached a point where finnual consumption of petroleum products exceeds new reserves found. In pursuing this course we have enabled many foreign countries to operate without any national debts and we have greatly Increased our Own balance-of- payments and deficit problems. The net effect of this combination of circumstances is that our Government has exposed our Nation to the whims and demands of foreign oil producing countries. This exposure is doubly serious in light of the fact that energy, is of course, the key to our complex industrial economy. We have by our own practices, and by the lack of any comprehensive policy, placed a club in the hands of foreign countries and this club is being used more and more effectively on a daily basis. We see every day headlines such as these in our major national newspapers: "Venezuela Presents Tax Deficiency Claims of $100 Million." "Algeria, Syria Demand Increase in Payments From Oil Companies." "Iran Seeks 17-percent Boost In Oil Shipments." "Kuwait Asks $56 Million in Retroactive Taxes." "Aramco Pays Saudi Arabia $66 Million In Retro Taxes," "Libya Levies $134 Million Itetroactive Tax Increase on 16 Oil Companies." "Oil Conflict in Iraq." PAGENO="0038" *34 FEDERAL OIL SHALE PROGRAM All this indicates to me that the Government of our country must quickly rec- ogmze its responsibility toward its domestic resources if it is to remain corn petitive in the fast mowng marketplaces of this world The impact of U S investment abroad is equally dramatic with respect to those countries producing bauxite In 1952 Jamaica produced no bauxite whatsoever but 5 years later the country had become a ma)or producer These develop ments were aided and encouraged by the U S Government Greece Hindustan and Ghana have all recently received substantial loans directly or indirectly from the U.S. Government to increase their activities in the aluminum industry. Norway and Germany have also received loans. Through such assistance Nor- way has become the fifth largest producer of raw aluminum as well as being the second biggest exporter. The experience in Norway demonstrates clearly what can be done in a market with rapidly expanding demands once a government policy to go ahead is determined. The United Nations through its Office of Special Funds Operations has given much encouragement to prospecting within the less-developed countries. Be- tween $15 and $20 million will be spent by that office in the current year on min- eral prospecting. On December 7, 1966, it was reported in New Delhi, India, that tl~e Soriet Union was about to provide India another $330 million in economic aid. That economic mission was primarily for new industrial projects including expansion of a steel plant, aluminum plant, enlargement of iron mines, mineral explora- tion and development of petroleum resources. Not all of the competition with respect to the world's resources is any means friendly to our national interest. China has doubled its aluminum production between 1960 and 1965. Its bauxite production increased from 150,000 tons to 350,000 tons in the 3 years 1958 through 1960. Its imports of crude aluminum decreased from 38,000 tons in 1958 to 18,000 tons in 1960. The latest figures for Vietnam indicate that even while North Vietnam was torn by war it increased its production of bauxite from 9,000 tons in 1055 to 200,000 tons in 1957. Further, we are hearing every day more and more about the economic feasi- bility of nuclear power. So far, economics have dictated that bauxite be brought to a cheap power source. But this may change dramatically in the future and we should no be surprised if, as a condition to the purchase of bauxite, the supply- ing country insisted on the development of a nuclear powerplant with which to process the raw material. Guiana has announced its policy that bauxite will hereafter be processed in the country of origin. In the weeks and months ahead we cannot expect that this ambition will be limited to Guiana, and it now seems unwise in the extreme to permit ourselves to become reliant on foreign countries f or both raw materials and production facilities. With respect to aluminum, it once could be said that the lack of any domestic supply forced upon us the necessity of reliance on imported sources. Impor- ~ation was thus a matter of necessity and not of policy. We are now, however, at the crossroads and the time is at hand for a bold new policy designed to stimu- ate the development of our domestic resources through concerted action by the overnment and private enterprise. As I indicated earlier, the international aspects of resource development resent a two-sided coin. On the one side we are concerned with foreign aid. he State Department has traditionally taken the position that full and unfet- t red trade should be stimulated between our wealthy country and underdeveloped ations. For this reason the State Department, exercising its terrific power in pplicy determinations within our Government, has generally disfavored recent e~'forts to stimulate our domestic industries. But such a position presents a striking paradox in several instances. Let me c~te, for example, the case with respect to Brazil. During fiscal year 1965 our fdreign aid expenditures to Brazil equaled $285,900,000. Of this amount two of tl~e largest items were loans which equaled $218,400,000 and military assistance eç~ualing $14,300,000. On the other hand, a study of the Brazilian budget inch- ca\tes that imports of petroleum and petroleum products have been steadily in- c$asing into that country. The cost to Brazil for petroleum imports is currently ru~ining around $50 million per year. One of the principal reasons why Brazil fin~ls it necessary to import oil is that it has been unable so far to bring to corn- me~cal production its known oil shale reserves. This failure is accounted for in lar~e part by the discouragement Brazil has received from our own country. PAGENO="0039" FEDERAL OIL SHALE PROGRAM 35 Brazil has consistently sought technological assistance from the United States but we have been unable to supply this necessary assistance. Our failure in this reg~trd can be laid directly to the do-nothing policy with respect to oil shale development that our Government has bad up until the present time. I a~n hopeful that the necessary technology will be forthcoming in the near future. I am hopeful also that we will then see the futility of handing large sums of money over to a country such as Brazil only to watch at least a fifth of those American dollars spent to import raw materials into that very country which receives our largess. This folly could be reversed by merely providing our neighbors with technological assistance rather than dollar giveaways. A positive national policy by our own country would affect just such this needed reversal. BALANCE OF PAYMENTS Previously in my remarks, I pointed to the rapid expansion of resource devel- opment and investment in foreign countries. This leads us logically to the ques- tion of balance of payments. That question is one of the major problems facing the present administration. Indeed, the flight of gold is one of the major prob- lems of our country in this entire century. It is becoming increasingly clear that we cannot solve the problem of the bal- ance of payments by sanctions. Indeed, just within the past few days, Mr. John- son in his economic report for 1967 saw fit only to say that the United States will "continue to move toward equilibrium as rapidly as the foreign exchange costs of the Vietnam conflct may permit." Compare this to the administration's talk last year, when it spoke of attempting to reach payments equilibritim in 1966. Now, I would say to you and to President Johnson that tre cannot continue buy- ing oil and bauxite abroad in face of a rapidly decreasing gold reserve. Despite the seemingly intolerable complexities of the balance-of-payments problem, one basic economic reality is obvious. That reality is that we must strive to in- crease our exports as we decrease our i~mports. This means that we must find our own sources of raw material as well as reduce the cost of our finished products. The U.S. petroleum industry showed a trade deficit of $649 million in 1964, nearly 75 percent more than in 1960. During 1960 to 1964, exports remained level while imports rose by over $300 million. The petroleum industry imported some $1,080 million worth of crude oil in 1964 plus another $590 million of re- fined products. Projections up to 1975 indicate tliat the trade deficit in the petroleum industry will continue to rise with estimates up to $1,702 million of trade deficit by 1975. Earlier, I indicated the dominant role played by just seven companies in the rapid increase of oil production in foreign countries. These seven companies paid $2,451 million to foreign governments in 1965. The percent paid to foreign governments rose from 50 to 65 percent in the 8-year period, 1957-65. In light of the growing competitiveness, indeed of the growing hostility, on the part of foreign governments whose countries produce vast quantities of petroleum or aluminum minerals, I. believe that it is high time our own country, the United States, reassess its position in the world marketplace and take im- mediate steps to increase our competitiveness for the years ahead. Instead of simply reacting to circumstances as this government has been wont to do in the past, we should now act affirmatively by establishing a comprehensive and thoughtful policy which considers the needs of our industries and provides for the full development of our great natural resources. TIlE ROLE OF GOVERNMENT This now, then, brings me to the last point I wish to make in my remarks here before the Senate. It must be recognized that in order to develop fully, and in an orderly way, this new domestic industry, State and local governments, pri- vate industry, and the Federal Government will all have to act as mutually responsible partners. As was indicated at the beginning of my remarks, I am hopeful that the Senate will conduct hearings on the question of the governmental role in this industrial development in the very near future. First on the agenda of these hearings should be an analysis oi~ Secretary Udall's plans with respect to point 3 of his announced five-point program. The Interior Department's plans for regulation of the research and development phase and later the operational phase of the PAGENO="0040" 36 FEDERAL OIL SHALE PROGRAM oil shale industry should be discussed before their publication. Our Senate hear- ings should examine these proposed procedures in detail and In depth. We should invite representatives of private industry for their views In order that procedures can be developed which %Vill be fair to all parties, big or small. It will be of no service to announce an oil shale development policy only to find that the details of the administrative procedures inhibit, rather than promote, the entrance of private industry into this new field. Next the Congress must concern itself with the need for increased research and exploration of our oil shale and associated mineral reserves. I have asked the Bureau of Mines to advise me of the exploration and study plans presently underway in the oil shale field. Dr. Walter Hibbard has been most helpful in this respect and I am sure that his remarks on what further authorizations and appropriations are necessary for future studies will be of great benefit to Congress. Next, we must begin to give close scrutiny to the long-range water require- ments for such a fantastic new industry. I was greatly encouraged to see in President Johnson's budget request an item for a reconnaissance study of the up- per Green River Basin. This water study, which bad been requested by Senator Simpson, my predecessor here in the Senate, and myself, will be the first step down the road to a full appraisal of our municipal and Industrial water needs. But I am certain that further and broader investigations will be required in order properly to project the amount of industrial and municipal water which will be necessary for this new industry by the year 2000. Again, advice from the Department of Interior should be sought in this matter. I will be prepared to ask Congress for the necessary appropriations once such study plans are firm. And last, but by no means least, the States of Wyoming, Colorado, and Utah must be called upon for their views and their proposed action in regard to this new industry development. These States have traditionally been vested with policing power over such matters as con~ervatIon regulation. The proper regula- tion by the States of this new industry should prove to be no exception. I am hopeful that the State Legislatures of Wyoming, Colorado, and Utah will be- gin immediate plans for the drafting of necessary conservation regulations and for the regi~lation of air and water and land pollution. In this regard, it will be incumbent upon Secretary Udali to solicit the mutual cooperation of the at- fected states and to arrive at coordinated regulations and policing practices. The leaders of these three great States should be Invited to present their views and their problems before Congress and to receive every assistance possible in dealing with the anticipated needs of local areas. The creation of whole new cities and their attendant municipal services must be anticipated. Proper lead- times must be provided for iii the establishment of new long-range taxation pro- grams and local governmental authority. School, hopsital, sewage, fire, and water districts should be created well in advance of a great burgeoning industry. The present chairman of our Senate Interior COmmittee recognized the vast implications of an oil shale development program several years ago. In 1965, Senator JACKSON called for informational hearings before his Interior Commit- tee and introduced those hearings with these remarks: "All too often in dealing with problems affecting our natural resources, both economic and aesthetic, this Committee is faced with a condition, not a theory. Conditions often demand ad hoc solutions to imntediate, limited problems. But as I pointed out earlier, such is not the case here today. We hope to have basic facts and issues presented, and then to be able to delierate on broad, overall policy questions involved in the wisest and best course of action to take with respect to this great natural resource found so abundantly in our public domain." It is fitting that I should close with Senator JACKSON'S remarks, for nothing further can be added at this time. Now let us get on to the task at hand. Senator HANSEN. Mr. Secretary, I would like to commend you on a very excellent statement here this morning. I am delighted that you addressed yourself on the question of availability of water and by implication referred to some of the things that were of real concern to us. I would like also to commend the senior Senator from Colorado for having driven right to what I think is the crux of this issue in dis- PAGENO="0041" FEDERAL OIL SHALE PROGRAM 37 cussing in considerable detail some of the problems that have been concerning us with point 3 of the program. Upon announcing the five-point development program, the Depart- ment of the Interior simultaneously withdrew oil shale lands from both mining location and sodium leasing. I would like to ask, Mr. Secretary, when the withdrawal order of 1930 and then this most recent withdrawal order will be rescinded by your Department? Mr. BARRY. It will be rescinded when a viable oil shale industry is in existence, at which time the lands will be made available in aceord~~ ance with whatever laws then exist for the leasing or other disposal of the oil shale. The Mineral Leasing Act is inadequate in many respects for man- agement of the oil shale. We can go forward with our proposed devel- opment program, but we anticipate that we will be asking Congress for legislation in order to have a systematic and proper development of the resource. Then, of course, when Congress provides us with a law that is workable, the withdrawal will probably be lifted. Senator HANSEN. Thank you, Mr. Barry. In other words~ your first stage leases will be issued during the withdrawal. Would this be a proper conclusion to make? Mr. UDALL. Yes, that is right. In other words, if our new policy is implemented we slowly lift the withdrawal orders as the development moves forward. We just roil it back, as it were. Senator HANSEN. Mr. Secretary~ in first announcing the Depart- ment's oil shale development program on January 27, you made no mention of the role to be played by affected States in this development. I would like to ask what efforts will be made by the Department of the Interior to coordinate and to cooperate with the States of Colorado, Wyoming, and Utah in establishing necbssar~ conserwttion regula- tions and in beginning to plan for necessary community develop- ments? I know you indicated in your statement something about the size of the water problem. Mr. UDALL. Yes. Well, Senator, this is a very key pomt and asa former Governor, it is logical for you to make it. Our relationship with the States is going to be very vital in terms of carrying out this total plan, and particularly when one comes to the conser\ratlon of the other resources in the region. The State not only has an inter- est because there is some State ownership but I would think that the States have a very big interest in terms of what I call the conserva- tion approach. When it gets to water pollution, the States are obviously going to play a very vital role. When it gets to the problem of protecting the other resources in the region, I think the State may have an even more vital interest than the Federal Government does. And we have invited the States to participate with us in evolving this policy. It may be advisable for me personally maybe to m~et with the Goir- ernors as this thing develops and to discuss the mutual problems that we have. I think an intimate working relationship with the States, to sum up, is a very important ingredient of our policy and should be. Senator HANSEN. Well, I am delighted to hear that statement, Mr. Secretary, because I think that, as you so well know, many of the States have conservation organizations of one kind or another. Not PAGENO="0042" 38 FEDERAL OIL SHALE PROGRAM only do we have conservation organizations insofar as the pristine quality of our landscape is concerned but as well we are deeply involved in trying to see that we make the best and wisest utiIization~ of our natural resources. In this context I would say that, if the Department could cooperate closely with the States, it would seem to me there would be a very favorable public reaction and I should think that the sort of relationship that might thus be developed would be all to the good. We are proud of what has been done in Wyoming and, I think, having participated with a number of other Governors in the interstate oil compact, we have become well aware of the fact that the problems of conservation differ from State to State because we have a whole body of law in one State that is not duplicated in any other State and we have developed these conservation approaches. I certainly would hope that you will continue to give the direction that you indicate here this morning. There was mention made by you, Mr. Secretary, in the first briefing that you gave to the delegations from Wyoming, Colorado, and Utah,. of the experiences of the Provincial government of Alberta and that that might provide some instruction for the administration of oil shaie development programs. I would like to point out that, while the Alberta tar sands and this country's oil shale reserves present similar problems, the historical evolution of mining laws in Canada has in no way paralleled the creation of this country's mining law history. I would consider it extremely improvident for this country now to vest the Department of the Interior with such plenary powers as' are now possessed by the Minister of Mines and Minerals for the Province of Alberta. If such powers were given to our own Secretary of the Interior, I believe, of course, this would require a drastic re- vision by Congress of the Mineral Leasing Act of 1920. I take it, Mr. Secretary, that you do not envision the need for such a revision. Indeed, you have indicated that there is no new legislatiou necessary at the present time. That being the case, I would hope that you would agree with me that it would be extremely unwise to depart from our traditional competitive leasing practices set forth in the Mineral Leasing Act of 1920 and to commence on a new cOurse which would require the writing of ad hoc contracts on a piece by piece and a party by party basis. Would you care to comment on that, sir? Mr. UDALL. Well, Senator, my reference to the experience of th~ Canadian Provinces did not envision the type of changes that you were referring to. You are quite right in pointing out that they have had a different history in terms of administering and developing a pattern of developing mineral resources than we have in this country. My references in the press briefing to the Alberta tar sands was pri~ manly to `bring out the fact that the contractual relationship between the' Province and the companies that are developing the tar sands, at least some aspects of it, might be useful in showing us what different alternatives there were in deciding how you entered into a contract, I learned some other things by asking questions while I was in th~ Middle East 2 weeks ago. I think any time that we can look at an- other country, we can profit from their experience, whether it has been good experience or bad, whether it is something to avoid or some- PAGENO="0043" FEDERAL OIL SHALE PROGRAM 39 thing to take advantage of in terms of what they have done. The phrasing of the contract and the fact that after certain things were performed, then other rights were acquired and the project moves into a second stage, was more the thing that I had in mind. Senator HANSEN. Thank you, sir. I would like to add for the record that Governor Hathaway of Wyoming has a statement he will he submitting. The Governor's statement indicates the interests of our chief executive in Wyoming in this whole matter of Federal~ State relationship insofar as conservation practices are concerned~ Mr. Chairman. Senator Moss, That will be included in the record at the conclusion of the testimony of the Secretary, along with statements of other Gov- ernors and Members of the Congress. To illuminate the discussion we had on the recent modification of the withdrawal of oil shale lands, I will place in the record the text of the Executive order of President Hoover, dated April 15, 1930. This will show the length of time that there has been withdrawal of oil shale lands. All of this time we have been trying to work out a policy for development of this resource. (The Executive order referred to follows:) EXEOXJTIVE OIWER [No. 5327] WiTHDRAWAL OF PUBLIC OIL-SHALE DEPosITs AND LANDS CONTAINING SAME FOR CLASSIFICATION Under authority and pursuant to tbt~ provisions of the act of Congress ap- proved June 25, 1910 (36 Stat. 847), as amended by the act of August 24, 1912 (37 Stat. 497), it is hereby ordered that subject to valid existing rights the deposits of oil shale, and land containing such deposits owned by the United States, be, and the same are hereby, temporarily withdrawn from lease or other disposal and reserved for the purposes of investigation, examination, and classi- fication. This order shall continue in full force and effect unless and until revoked by the President or by act of Congress. HERBERT HOOVER. THE WHITE HOUSE, April /5, 1980. Senator Moss. Senator Hansen, have you completed your questions? Senator HANSEN. I would like, if I may, Mr. Chairman, to reiterate a statement made by the senior Senator from Colorado, to which I subscribe wholeheartedly and that is to express my keen interest in hoping, Mr. Secretary, that you will provide us with a draft of your proposed leasing regulations at the very earliest time that they are available. I know Senator Al]ott expressed his keen interest, too. Mr. UDALL. We will be glad to do so. Senator HANSEN. Thank you very much. (The information requested is as folhws:) PROPOSED REGULATIONS To OOVEEN OIL SHALE LEASING AND LAND EXCHANGES ANNOUNCED Regulations which would permit a limited area of oil shale lands to be leased for research and development, and others to be exchanged, under conditions designed to protect the public interest are being proposed by the Department of the Interior. "We sincerely hope that these proposed regulations, being published in the Federal Register, will receive the widest possible range of comment from the general public, members of Congress, industry, the scientific and educational community and the three States most directly involved," Secretary of the Inte- rior Stewart L. lIJda1l said. lIe promised careful consideration of all comments before any rules are officially adopted. PAGENO="0044" 40 FEDERAL OIL SHALE PROGRAM The proposed leasing rules were drafted under authority o1~ the Mineral Leas- ing Act to implement Point 3 of a five-point overall program announced by Udall January 27 to promote the recovery of shale oil and associated minerals from the rich Green River Formation in Colorado, Wyoming and Utah. Most of this land is Federally owned, and administered by the Interior Department's Bureau of Land Management. The third point of the comprehensive program calls for procedures to permit the interior Department to consider applications for provisional developmental leases of oil shale lands. In testimony before a committee of the Senate recently, Udall described this point as "at once the most difficult and most crucial, since it involves the first experimental and limited steps toward opening the shale reserves to actual development." Known oil shales in the three States are estimated to contain the equivalent of approximately 70 times the nation's proved reserves of crude petroleum. In some locations they are intermingled with substantial quantities of minerals contain- ing sodium and sodium-aluminum compounds. No more than 30,000 acres in all would be involved in the leasing program under the newly proposed rules. About 11 million acres are classified as contain- ing oil shale land in the three States. About 5.1 million of these acres~-some 3.7 million of them Federally owned-contain "15-15" shales-that is, shales at least 15 feet thick which would yield at least 15 gallons of oil per ton. The richest shales are believed to be in the Piceance Creek Basin of Oblorado, where some 770,000 acres contain 25-gallon-per-ton shale in thicknesses of 15 feet or more. About three-fourths, or 580,000 acres, are Federally owned. Thus, 30,000 acres would represent only slightly more than 5 percent of the federally- owned shale lands in this area. However, areas to be designated for leasing will be selected by the Department in order to encourage research on a variety of shale conditions, and will not be limited to the richest areas. Development leases, the Secretary pmphasized, would involve two distinct phases. The first phase-limited to 10 years-would require the contractor to expend research and development funds on relatively small aereages. The aim of the Department would be to encourage a variety of approaches leading to a technology which could support a broadly based competitive leasing program, the Secretary said. The second phase, reached only when the Secretary finds research work has proved successful, would make available to the lessees acreages large enough to sustain a commercial operation of specified capacity for as long as mineral products are produced in paying quantities. However, under the terms of the Mineral Leasing Act of 1920, no lease may exceed 5,120 acres, and not more than one lease may be granted to any one person, association or corporation. Leases all would expire at the end of their research periods unless the Secre- tary of the Interior authorized commencement of the commercial production term. Private citizens, associations, corporations or municipalities would be eligible to make proposals for leases. Evaluation of their proposals, after "consultation with appropriate Federal, state and local agencies," would be based on a number of specified factors. Among these would be prospects of attaining commercial feasibility of a variety of mining and processing methods, under varying condi- tions; enhancing chances to make maximum recovery of other minerals involved; improving the competitive opportunities for smaller companies; and limiting potential hazards to the environment and to human safety. Other factors would be the applicant's financial and technical capabilities; his need for leased lands to do the work; the pace of his proposed research and development; the likely effects on competition; etc. Applicants must disclose their interests in other oil shale lands, and state their need for a lease, their financial and technical capability, their plan of work, including research goals, and the nature, location and cost of plants and equipment they would install. They would have to specify the number of "key persons" to be employed, and their qualifications. Also required will be a sched- ule of proposed expenditures, and the techniques to be studied. Additional information to be provided will include a description of steps to be taken to avoid or minimize possible adverse effects on the environment, the applicant's water needs and source of supply, the measures to prevent waste of mineral resources, and plans for a commercial operation if the research succeeds. There would be a minimum royalty to the Federal Government of 3 percent of the gross value of the mineral products from the oil shale at the point of shipment to market, wilh a graduated scale of royalties ranging up to 50 percent PAGENO="0045" FEI)hItAL OIL SHALE PROGRAM or the net income from the property. "The purpose of the sliding scale of royal- ties is to encourage new ventures in oil shale development, while protecting against the possibility of windfall profits," Secretary Udall said. Royalties would be subject to readjustment every 20 years as required by the 1920 Mineral Leas- ing Act. The lessee would be required to submit annual progress reports on all sc~ork accomplished and results achieved during the research period. The information will be promptly made available to the public. The right to use inventions made during or under the research term of the lease will be available to the public without charge in accordance with, and subject to the limited exceptions of, the President's Statement of Government Patent Policy of Oct. 10, 1963. In addition, the lessee would be required to issue licenses at reasonable royalties, permitting use of patents he may own which are necessary to permit others to use inventions resulting from the research. Before approval, leases would be submitted to the Attorney General for advice on their consistency with the objectives of the Federal antitrust laws. The Department announced that proposed regulations to govern exchanges of oil shale lands, also are being published in the Federal Register. This would implement Point 2 of the five-point shale program, permitting exchanges of scattered holdings of private lands in the region for Federal land of similar qualities. This will permit consolidation of private holdings for efficient mining operations. Lands offered to the Department for exchange would have to have a value at least equal to the value of the selected public lands. All exchange proposals would be advertised in local newspapers in order that others who wish may also apply for the selected public lands within 60 days. U.S. DEPARTMENT or ~rrrn IN~r~ron, BUREAIJ or LAND MANAGEMENT, WASHINGTON [43 CFR, Part 3170] OiL SHALE Basis and Purpose. Notice is hereby given that the Department of the Interior proposes to amend the regulations regarding the leasing of oil shale lands, found at Part 8170 of Title 43 of the Code of Federal Regulations, by revoking those regulations and substituting the proposed regulations set forth below. Interested persons are invited to submit their comments in writing to the Director, Bureau of Land Management, Department of the Interior, Washing- ton, D.C. 20240, within thirty days of the date of publication in the Federal Register of this notice. Persons wishing to present their views orally are re- quested to communicate with the Director, Bureau of Land Management. Part 3170 is amended to read as follows: PAnT 3170-OIL SHALE Subpart 3170-Oil Shale: General 3170.0-1 Purpose. 3170M-3 Anthority. 3170.0-5 Definition of term "Oil Shale". 3170.1 Designation of Available Lands. Subpart 3171-Applications for Leases 3171.1 ~jualifications of Applicants. 3171.2 Form and Contentnof Applications. 3171.3 Considerations to be used in Evaluating Applications. 3171.4 Time for Filing. Subpart 3172-Miscellaneous Provisions 3172.1 Form of Lease. 3172.2 Term of Lease. 3172.3 Acreage Designations and Limitations. 3172.4 Rentals. 3172.5 Royalties. 3172.6 Termination of Lease. 3172.7 Lease Bond. 3172.9 Other Provisions 3172.10 Antitrwst Consultation. 41 PAGENO="0046" 42 FEDERAL OIL SHALE PROGRAM STJBPART 3170-OIL SHALE: GENERAL S `~17O 0-1 Purpose Ihe e regulations govern the availability for leasing of a limited acreage of oil ~ha1e lands under the jurisdiction of the Department of the Interior. The objec- tives are to: Fo ter improved technology for the mining and recovery of shale oil and other mineral components of oil shale; Encourage competition in development and use of oil shale and related mineral resources and develop a basis for subsequent competitive leasing of Federal oil shale lands; Encourage participation by companies not favorably situated with respect to access to reserves of the minerals present in oil shale; Prevent speculation and windfall profits; Provide reasonable revenues to the Federal and State Governments; under miiiing operation and production practices that are consistent with good conservation management of overall resources in the region. § 3170.0-3 Al4tlrority. These regulations are issued pursuant to the Mineral Leasing Act of Feb- ruary 25, 1920 (41 Stat. 445), as amended, (30 U.S.C. 181-287). §31700-5 Deflwttion of Ternr "Oil Shale." As used herein; the term "oil shale" means sedimentary rock containing organic matter which yields substantial amounts of oil or gaseous products by destructive distillation. The çerm includes all the minerals which are components of the rock, but does not include: (a) deposits of minerals which may be interbedded in the sedimentary rock series and which the Secretary determines can be mined (i) without removal of significant amounts of organic matter and (ii) without significant damage to oil shale beds; and (b) deposits subject to lease as oil and gas asphaltic minerals, or coal. § 3170.1 Designation of Available Lands. The Secretary will from time to time publish notices in the Federal Register designating areas of oil shale bearing lands and deposits for the conduct of particular types of mining, extraction, or processin gactivities which will be made available for leases for research and development and for subsequent commercial operations in accordance with these regulations. Areas will be selected with a view to encouraging research on a variety of mining and proces- sing methods under a variety of conditions of mineral depths, composition, thick- nesses and qualities, and *taking into consideration sound principles of con- servation and environmental protection. A total of no more than 30,000 acres of oil shale bearing lands will be designated hereunder. Oil shale bearing lands, the surface of which is under the administrative purisdiction of a Federal agency other than the Department of the Interior, will not be designated here- under. SUBPART 3171-APPLICATIONS FOR LEASES § 3171.1 Qualifications of Applicants. (a) Leases may be issued to: (1) Citizens of the United States; (2) Associations of such citizens; (3) Corporations organized under the laws of the United States, or any State or Territory thereof.; (4) Municipalities. (b) The term "associations" includes partnerships, syndicates, groups, pools, joint ventures and other unincorporated organizations. § 3172. Form and Contents of Applications. (a) No form of application is prescribed. (b) Applications should be in writing and filed in triplicate in the Ofilce of the Director, Bureau of Land Management, Interior Building, Washington, D.C., 20240, notwithstanding the provisions of section 3001.0-0 of this chapter. (c) The application should provide: (1) The complete name(s) and address (es) of the applicant(s). PAGENO="0047" FEDERAL OIL SHALE PROGRAM 43 (2) The qualifications of applicant(s) to hold a lease under the Act (3) A description of the land for which a lease is desired ~4) A detailed statement of any direct or indirect interest which the ap phcant then has in any lease issued or applications pending hereunder including ownership interests in any holder of a lease issued hereunder (5) If the applicant is a corporation the name and address of each stockholder of record holding more than 10 percent of the corporation s stock. (6) If the applicant is an association the name and address of each member who has an interest of more than 10 percent in the association. (7) A statement of the applicant's interests in non federally owned oil shale lands and the reasons why the applicant needs federally leased land for the proposed research and development The statement should include a description of the location and acreage of such lands and the best avail able information on the depth quantity composition quality and thickness of mineral deposits present in such land (8) A detailed statementof the applicant's financial capability to conduct the proposed research and development. (9) A detailed statement of the applicant's technical capability to conduct the proposed research and development. (10) A description of the applicant's plan of research and develupment during the research term, specifying: [1] The goals of the research plan; S [2] The nature, location and cost of plants and equipment to be utilized; [3] The number of key persons to be employed and their qualifications; [4] The schedule of expenditures; [5] The mining and processing techniques to be studied; [6] The possible adverse effects on the environment and the measures to be taken to avoid or minimize such effects; [7] The acreage required for the research: [8] The depth, quantity, composition, quality and thickness of shale deposits required for the research; [9] The quantity of water required and the expected source; [10] The measures to be taken to prevent waste of the mineral re- sources of the leased land. (11) A description of the reserves the applicant then owns or controls of oil and other minerals of the kind believed to be present in the lands applied for. (12) With respect to the commercial operation sought to be developed if the research plan is successful: [1] The general nature of the commercial operation, the commod- ity(ies) or product(s) expected to be produced, and the approximate service life and capacity of the plant to be constructed. [2] The expected annual unit and dollar value of production of each mineral ~ to be produced. If the proposed commercial operation does not include extraction of component mineral products from the oil shale, a description of the prospective market. [3] The expected capital and annual operating costs, [4] The quantity of water required and the expected source. [5] The expected bazarc~s to the environment and the measures pro- posed to avoid or minimize them. [6] The quantity of land and the depth, quantity, composition, quality and thickness of nrineral deposits required. § 3171.3 Consideration to be used in E'valnating Applications. After consultation With appropriate Federal, state and loc~I agencies, evalua- tion of the research and development proposals will be made on the basis of the following considerations: S (a) Selection of proposals showing greatest promise of: (1) Ascertaining the commercial feasibility of a variety of mining and processing methods, under a variety of condjtions; S (2) Enhancing opportunities for maximizing multiple mineral re- covery; (3) Enhancing the competitive opportunities of smaller companies; (4) Limiting any potential hazards to the environment; PAGENO="0048" 44 FEDERAL OIL SHALE PROGRAM (5) Limiting any potential hazards to human safety. (b) The financial and technical capabilities of the applicant to conduct the proposed research and development, and the projected commercial operation. (c) The pace at which the research and development is proposed to be conducted. (d) The applicant's need for leased lands to conduct the proposed research and development, and the projected commercial operation. (e) The effects on competition of the proposed research and development and the projected commercial operation. (f) The applicant's need for reserves of the minerals proposed to be pro- duced under his proposal. § 3171.4 Time for Filing. No application will be accepted if filed later than five years from the date of publication of these regulations in the Federal Register. [The exact date will be inserted when the final regulations are published.] SUBPART 31 72-MISCRLLANEOUS PROvISIONS § 3172.1 Form of Lease. No form of lease is prescribed. § 3172.2 Term of Lease. (a) Research Term. The research term of any lease issued under these regu- lations shall be designated by the Secretary, but in no event may exceed 10 years. (b) Commercial Production Term. The Secretary will extend the term of such lease upon completion of the research term to permit commercial production for so long as mineral products are produced from oil shale in paying quantities from deposits on the land, if he has determined that: The lessee conducted research acth~ity during the research term substan- tially in accordance with the plan submitted in his application, or any inodi- fication thereof which was approved by the Secretary. (2) The lessee has, in the course of the research term, developed a min- ing and processing method, which: [1] Is commercially feasible; [2] Provides for optimum recovery of minerals to be produced; [3] Can cmoply with requirements deterininej by the Secretary to be necessary to prevent or minimize pollution of air and water, scenic or esthetic damage to surface resources, to fish and wildlife, and baz~rds to human safety. (3) The lessee has compiled with all the terms of the lease. § 3i72~3 Acreage Desig'na4ions and Limitations. (a) No lease issued hereunder may exceed 5,120 acres. (b) Upon the issuance of any lease hereunder the Secretary shall designate the part of the leased lands upon which the lessee will be permitted to conduct operationa during the research term. (c) At the time for the grant of any extension of the term of lease as provided in section 3172.2(b), the Secretary will determine the quantity of mineral de- posits needed for commercial production, allowing reasonable reserves. The term will be extended only with respect to the area which contains the quantity of mineral deposits so determined. (d) No person, association or corporation (including a municipality) may take, hold, own or control an interest in more than the total maximum acreage of land included in any lease hereunder, except insofar as natural persons are permitted to hold greater interests under 30 U.S.C. sec. 184(e), by virtue of their 10 percent or lesser interests in corporations or associations holding leases here- under. § 3172.4 Rentals. Leases shall provide for the payment, in advance, of an annual rental of 50 cents for each acre or fraction thereof. § 3172.5 Royalties. (a) Leases shall provide for the payment of royalties on production during their commercial production terms. (b) The royalty rate on production shall be 3 percent on the gross value, at the point of shipment to market, of the mineral products from the oil shale, except as provided in subsections (c) and (d) of this section. Such royalties PAGENO="0049" FEDERAL OIL SHALE PEOGRAM - 45 shall be due and payable rnenthly on tb~ last day o1~ the calendar month next following the calendar month in widcb produc~cL (c) If the total annual royalty payment on production as computed in accord- ance with subsection (b) of thiS section is less then. the payment would be if computed in accordance with subsection (d), then the lessee shall pay, by March 1 `of the succeeding year, an additional amount equal to the difference between the royalty paid and the royalty as computed in accordance with subsection (d). (d) The annual net income royalty rate shall be a percentage of net income from the production of mineral products from oil shale to the point of shipment to market. The net annual income royalty rate is: Ten (10) percent of that part of the net income which is no more than ten percent of investment. Thirty (30) percent of that part of the net income which exceeds ten percent and is no more than twenty percent of investment. Fifty (50) percent of that part of the net income which is more than twenty percent of investment. As used in this section, "net income" means taxable income, computed without allowance for royalty and depletion. "Investment" means the original cost less depreciation of capital assets used in the aforesaid production and processing of oil shale. The term "investment" does not include oil shale obtained pursuant to a lease issued hereunder. (e) Lease royalties shall be subject to readjustment at 20-year periods succeed- ing the issuance of the lease. Lessees will be notified of the proposed readjust- ment of royalties or notified that no readjustment is to be made. Unless the lessee shall file either a notice of objection and offer to negotiate the proposed read- justment of royalties, or file a relinquishment of the lease within 30 days after receipt of the notice, lie will be deemed' to have agreed `to such readjusted royalties. (f) The Secretary will, prior to any readjustment under subsection (e) of this section whIch would reduce the rate of royalty on my lease', publish a notice of intention to make such reduction in the Federal Register, inviting written corn- ments by interested persons, to be filed within 60 days of the issuance of the notice. The Secretary will not readjust such royalties prior to the expiration of such 60-day period. (g) Leases shall provide for the payment of royalties during their research terms, on minerals and mineral products sold by the lessee. The royalty rates shall be the same as those applicable during the commercial term. § 3172.6 Termination of Lease. Each lease issued hereunder shall terminate at the end of its research term unless, prior thereto, the Secretary has autborized~ the commencement of the commercial production term. § 3172.7 Lease Bond. A bond of not less than $100,000, conditioned on performance of the obligations imposed by the lease, the Act, and these regulations will be r~q~uired prior to the issuance of an oil shale lease. The right is reserved at any thee before or after the issuance of the lease to require an increase of the amount of the bond in any case where the Secretary deems it proper to do so. § 3172.9 Other Provisions. (a) Protection of the Environment and Human Safety. The lease will con- tain such provisions as the Secretary deems necessary to prevent or minimize pol- lution of air and water, scenic or esthetic damage, damage to surface resources, and to fish and wildlife and hazards to human safety. (b) Prevention of Damage to Other Mineral Resources. The lease will con- tain such provisions as the Secretary determines necessary to protect other min- eral resources which may be involved. (c) Diligence in Pursuit of Plan of Research. The lease will require that the lessee pursue diligently both the plan of research upon which his lease was issued and operations during the commercial production phase. (d) Disclosure of Information Developed During the Research Term. (1) The lease will contain provisions requiring the lessee: [1] To submit annual progress reports during the research period, in sufficient detail to disclose fully all work accomplished and results achieved. [21 To submit, within 120 days after completion of all work under the research plan, a final report summarizing the state of the art and PAGENO="0050" 46 FEDERAL OIL SHALE PROGRAM covering conclusions and recommendations derived therefrom. The re- port shall include a complete and detailed disclosure of all materials, processos, and equipment involved, including all the technical and fi- nancial data needed to enable any qualified person to carry out the work performed under the lease. Where appropriate, the recommenda- tions shall include proposals for further improvements which would advance the future state of the art based on knowledge acquired in the performance of the work under the lease. [3] To make such other reports and supply such information regard- ing the progress of the research as the Secretary may specify from time to time. [4] To permit access, by persons designated by the Secretary, to the leased premises, all facilities thereon, all other facilities in which any part of the research is conducted, and all books and records which di- rectly relate to the plan of research being conducted. (2) The lease will provide that no report required under the lease may be copyrighted and the lessee, without additional compensation, therein grants to the Secretary the full right to publish, reproduce and use, and to have others to do so, for any purpose without limitations, the reports and any information obtained by the Secretary hereunder. The Secretary will promptly publish the reports received and make the other information he has obtained available to the public. (3) The lease will require that the lessee agree not to publish, or to make available to others besides representatives of the Secretary, the results of the research work under the lease or any information concerning the same, without prior approval in writing from the Secretary. (e) Patents. The lease will contain provisions that the United States will acquire title to all inventions made in the course of or under the research term of the lease, and requiring the lessee to issue licenses at reasonable royalty rates, with respect to such patents as he may own, which are necessary to permit others to practice inventions made in the course of or under the research term of the lease, except that the lease may contain provisions granting greater patent tights to the lessee, in such cases where a proper showing of exceptional circum- stances is made, in accordance with the Statement of Government Patent Policy issued by President Kennedy on October 10, 1963, 28 P.R. 10943. (f) Assignments and Relinquishments. The lease will contain provisions gov- erning assignments and relinquishments. (g) Cancellation of Leases. Upon failure of a lessee to comply with the pro- visions of the Mineral Leasing Act, or of the regulations issued thereunder, or of the lease, and continuation of such default for 30 days after service of written notice thereof by the Secretary, the Secretary may institute judicial proceedings for the cancellation of the lease as provided in section 31 of the Act. Failure to give notice with respect to any particular cause of forfeiture shall not be deemed a waiver and shall not prevent the cancellation and forfeiture of the lease for any other cause of forfeiture, or for the same cause occurring at another time. (h) Additional Provisions. The lease will contain such additional provisions as the Secretary deems appropriate § 3172.10 Antitra.st Uon~ultation. Prior to the issuance of a lease, the Secretary will forward a copy to the Attorney General, requesting his advice as to whether the issuance of the lease would be consistent with the objectives of the Federal antitrust laws. STEWART L. UDALL, Bec'retary of the Interior. U.S. DEPARTMENT OF THE INTERIOR, BUREAU OF LAND MANAGEMENT, WAsHINGToN [43 CFR, Subpart 2244] EXCHANGES Basis and Purpose. Notice is hereby given that the Department of the Interior proposes to amend the regulations regarding exchanges of privately owned lands under the Taylor Grazing Act, found at Subpart 2244 of Title 43 of the Code of W~deral Regulations, by adding the proposed regulations set forth below. PAGENO="0051" FEDERAL OIL SHALE PROGRAM 47 Interested persons are invited to submit their comments in writing to the Director, Bureau of Land Management, Department of the Interior, Washington, D.C. 20240, within thirty days of the date of publication in the Federal Register of this notice. Persons wishing to present their views orally are requested to communicate with the Director, Bureau of Land Management. A new section 2244.1-7 is added, as follows: ~ 2244.1-7 Exchanges of Oil Shale Lands (a) Policy. Exchanges of public lands containing oil shale deposits may be con- summateci pursuant to Section 8 of the Taylor Grazing Act, 48 Stat. 1272 (1934), as amended, 43 U.S.C. 315g (1964), where such action will promote economic recov- ery of shale oil and associated minerals and is otherwise in the public interest. Except as otherwise provided in this subsection (2244.1-7) such exchanges will be made pursuant to section 2244.1. (b) Criteria. Exchanges of public lands containing oil shale deposits may be effected under the regulations in section 2244.1 only where each of the following requirements are met: (1) The offered land is oil shale land having similar geologic and physical characteristics and of a value equal to or exceeding the value of the selected public land. (2) The exchange will result in the consolidation of the offeror's lands so that they are susceptible of being managed as an economic unit for the recov- ery of shale oil and other mineral products. (3) ConsummatIon of the exchange will not result in impairment of proper utilization and management by the United States of its lands, including the land it is to receive in the exchange. (4) The applicant enters into a written agreement with the authorized officer that he will manage and utilize the selected lands and all neighboring oil shale lands owned or controlled by him at any time in such a manner that (a) there is compliance with all applicable Federal and State statutes and regulations relating to control of environmental pollution, and (b) there is adherence to a coordinated plan of sound conservation practices in the man- agement and use of such lands, including the avoidance of waste. (c) Application. Application must be made in accordance with section 2244.1-2. Upon the filing of an application, and prior to the making or issuing of any classification decision, the authorized officer shall direct publication of a notice of application in a designated newspaper of general circulation in the county or counties in which both the offered and selected lands are situated. The notice, which shall be published once a week for three cnnsecutive weeks, shall set forth the legal descriptions of the offered and selected lands, together with such other data as the authorized officer n~iay deem pertinent, and shall provide for a 60-day period from. date of the notice during which other private exchange applications may be filed for the selected lands pursuant to section 8 of the Taylor Grazing Act. Where more than one application has been filed for the selected lands the authorized officer shall take the following additional elements into con- sideration in determining which, if any, of the exchange offers will best benefit the public interest: (1) the relative values of the offered lands; (2) the location of the offered lands in relation to the public lands; and (3) the willingness of any of the applicants to enter into a written agree- ment with the Secretary specifying a time schedule and rate of investment reasonable in the circumstances and a plan of mineral operations that will permit optimum recovery of shale oil and other mineral resources from the selected tract and all neighboring oil shale lands owned or controlled by the applicant. STEWART L. TJDALL, secretary of the laterior. Senator Moss. The Senator from North Dakota? Senator BUEDICK. I do not have a question but I have an observa- tion. I would like to add my voice to a note of concern raised by the chairman and others on this committee. Is your statement you say: You may recall from the map which was reproduced in your 1965 bearing record that the private lands in the richest oil shale area of Colorado tend to stretch out into very narrow ribbons-usually following stream valleys. PAGENO="0052" 48 FEDERAL OIL SHALE PROGRAM I do not know anything about oil shale mining, and little about that area, but it would seem to me that you give a physical set up here that might be given to pollution of fresh water streaths and, I would hope that your Department would keep that high on the priority list when you have your regulations promulgated. Mr. TJDALL, Well, Senator, it seems to me we have a great oppor- tunity here. We must take a lesson from the traditional way that mining and mineral exploration developed in the West, where in the early stages you went in in a very single-minded way and you took out what you wanted. If you ruined the countryside and polluted the river, that was just part of the price of progress. Well, the modern approach is to have respect for all resources, to try to have a balanced program, and I think that we have a great opportunity here to show how to do it right. I am pleased that every- one that I have talked to, and there has been no dissent, seems to say, "Yes, we can do it this way." I think this is one thing, as Senator Hansen has suggested, that we ought to work closely with the States on, so that our goals are the same. It would be most unfortunate if the development of oil shale re- suited in pollution of streams. This resource is so rich, if we de- velop the right kind of economics, it can and should aspire to be a clean industry in the sense that it does a very minimum of damage to the other resource values that are present. Senator HANSEN. Mr. Chairman~ if I could interrupt for just one moment, I would just like to say in the context of your statement, Mr. Secretary, that there has just been brought to me Enrolled Joint Memorial No. 4 from the State of Wyoming that I would like to read: ENROLLED JOINT MEMORIAL 4 JOI~T MEMORIAL Expressing the sentiment of the Wyoming Legislature with regard to the development of oil shale and associated minerals in the State of Wyoming Whereas the economic stability, prosperity, and security of the State of Wyo- ming, of the rocky mountain area, and of the Nation will be greatly enhanced by the industrial development of oil shale and associated minerals: Now, there- fore, be it Resolved by the Thirty-ninth Legislature of the State of Wyoming, That we recommend to Governor Stanley E. Hathaway that he appoint an oil shale advisory board which shall advise him on how best to protect the public in- terest in Wyoming lands and how best to stimulate and promote the develop- ment of an oil shale and associated mineral industry in the State of Wyoming. WILLIAM S. SWANTON, Speaker of the House. RICHARD R. JONES, President of the Senate. I think this certainly attests to the firm conviction that is evident in Wyoming. Senator Moss. Thank you. Mr. Secretary, you discussed the likelihood that the Department would want to move on to testing nuclear energy for in situ retorting of oil shale, perhaps to follow the Gasbuggy project that is now under- way. Have any concrete steps or arrangements or estimates been made on that as yet or is this still just in the talking stage? Mr. TJDALL. Senator, I think it is probably' accurate to describe this as being in the planning, early planning stage. I think this is some- PAGENO="0053" FEDERAL OIL SHALE P1~tOGRAM 49 thing in which the Atomic Energy Commission peopk~ probably are going to have to provide much of the leadership in terms ~f timing. Much of this will come out of their budget rather than our own, of course. I can say, on the basis of my talks with Dr. Seaborg the other day, that they are very enthusiastic and very anxious to move as rapidly as you can lay out an orderly program. I think probably something like Project Bronco is a couple of years away or it may be three, but if Gasbuggy goes well, I think this will encourage everyone to move on to the next stage and see what can be done in oil shale. Senator Moss. You indicate that probably 20 percent of the oil shale is in private ownership now and that under this blocking up program I would assume there is a likelihood that larger blocks will come under private ownership control. Do you envision that there might be some acceleration if the private landowners want to get the cooperation of AEC, to try to develop the M situ process earlier? Mr. UDALL. No. My own feeling would be because of the public interest factor that the AEC would want to carry out its initial pro grams on Federal lands in order to do the maximum that it could to help the total effort here, to develop the technology, develop a process, rather than to give an advantage to any particular individual or company or group of private owners Now, the pattern you have in Gasbuggy includes my Department, the AEC, and a natural gas company, In that instance the patents and everything else will be fully protected because what the AEC wants and what we wa~it is that if this proves possible and feasible, that we don't give it to one monopoly, one company or small group of companies. It must be available to everybody so that the whole country gets the advantage of it. I think this is the thing that we want to keep our eye on in terms of the development aspect. I would add one other factor, Senator, as far as Project Bronco is concerned. Many of the private holdings are said to be quite thin or shallow. This is understandable because many of the patented mining claims were made on visible outcrops. It is our operating theory, on the other hand, that atomic explosions will be most useful where the deep deposits are. The Piceance Basin is undoubtedly the place to begin in terms of the richness of the deposits that are there. The economics will be more favorable in that region than to use these ex- pensive explosions elsewhere. Senator Moss. Do we know enough about the technology of this yet for you to tell me whether, using the nuclear energy on the oil shale, the kerogen, would eliminate and preclude any extraction of dawsonite or other mineral there? Would this nuclear method wipe it. out? Mr. UDALL. We don't have the final answers on this but I think the preliminary indications would be that it would not if you do these correctly. Senator Moss. There are some people who are interested in this area ivho believe they have a patented process now for the use of nuclear energy to extract oil. Is there any conversation going on with the AEC about the use of this patent? Mr. UDALL. I would rather you ask the AEC people the question on this, Senator. I am not really qualified to give you much of an answer. PAGENO="0054" 50 FEDERAL OIL SHALE PROGRAM Senator Moss. Do you have further questions? Senator ALLorr. The Secretary has only 5 minutes. I have not begun to cover what I want to ask, but I would, if I may, just take up one thing that has not been quite wrapped up, and it grew ou~ of the statement of the Senator from North Dakota. We are all concerned, of course, with water poll-ill ion, but actually one of the major problems that will arise from the con vent]onal--flOw conventional-mneti i ods of ext ractin~r shale oil conies from the disp~ )sal of the residue, and 1 know may own St ate is giving this grei~ con- sideration. I have actually seen some conservation 1)1a~t1~e~ I hit have been 1)111 juto efieci 011 a developiiieiitai basis to see what can bc done on this. 1 dont Suppose anybody has the complete a nsvei at this time, but this a]so is very much a part of what you are talking about when you say in your statement, or in substance, that your leases will contain firm assurances that good conservation practices will be observed in the commercial operation, is it not. Mr. Secretary? Mr. TTDALL. Senator. ~Od again have a l~ey point here imcl this is what we meant when we I alked about some of the research that the Bureau of iMjiies must do in nio(lenI mining methods. ~fhe tr'ith of the matter i~ that we are jiet on t he edge really of what we think can be very (Iralnat ic chaw~es in terms of modern niiniiie methods to imike ii; possible to (10 1 hine~ that we have not been able to do lieretofo'c. The fli!'() ~te(l effl1ip1llen~ that is med in (~)aI miutng is ene xam- pie. \on ~ii~ht Vetv Well evolv~ (0111 iflilOUS svsienl~, for exrrple, that would ~i ice it in, ret ort it, take it hack and deposit it in the same area rather than to have to spread it over the whole landscape. Learn- ing how to solve the problem of spent shale from a conservation point of view is something that I think we can master. Again, this brings me right back to the point I stressed earlier, that we have time to do it. That is one of the reasons that I think it is important to begin a lot of our research now so that when we are ready to go with a program, a big large-scale program, whether it is 8 years or 18, that we have the answers in terms of conservation of the other resources. Senator Moss. Maybe we don't have an excess of time. The Wall Street Journal this week reported that doniestic production of cr a Ic oil and liquid natural gas would have to rise from about 9 to 13 million barrels daily by 1980. So that is almost a doubling, unless we are going to start oil importation. We have to move on with this resource. Mr. UDALL. Well, Senator, to me the other very good thing in terms of the national interest that can be done here, if we do our job right, is that we can control and phase in oil-shale development so that it fits the national interest. This is something that I think may prove very important in terms of the economics of the energy industry and the petroleum industry in the future, that it is possible here if we are wise enough to do it that way to phase it in so that we do not have disruptions and gluts and all the sort of things that make for disorder in the economic picture~ Senator Moss. Thank you. Senator ATJ~oT~'. Mr. Chairman, as I have indicated, the time is short PAGENO="0055" FEDERAL OIL SHALE PROGRAM 51 Mr. Secretary, at some time convenient to you would it be possible for you to return so that we could continue the exploration of your statement? Mr. UDALL. I would be quite willing at any time, Senator. I think this is a very vital subject and needs to be thoroughly aired and I am at the pleasure of the committee. Senator ALLOTT. Thank you very much. Mr. UDALL. I have to catch a plane. That is why I---- Senator ALLOTP. I understand. Senator Moss. Thank you very mueh, Mr. Secretary, Mr. Luce and Mr. Barry, for being here this morning. You have been most helpful. As indicated by Chairman Jackson, we hope to maintain closest dialog and to follow carefully these developments as they move along. So we will look forward to having you back before the committee in the not too distant future. You are excused now. Thank you. Mr. Lucu. Mr. Chairman, the Secretary referred in his staterneut to a prospectus of oil shale resource development, being an elaboration of our points 4 and 5 of our five-point oil shale program. I don't believe this prospectus was ordered admitted to the record and I would appreciate it if it would be. I haye copies of this prospectus of research and development over a 10-year period for the committee if the members wish to have it. Senator Moss. The prospectus is of considerable interest and al- though it is lengthy, I think it shtuld be printed in the record. So without objection this will be inserted in the record as an appendix to this hearing. Now I request that there be printed in the record at this point a statement of the Governor of Wyoming~ a statement of the Governor of Utah, a statement by Senator Bennett of Utah, and do we have any others? Other statements that have been flied by any Members of Congress or the Governors of any of the States will be included. (The statements referred to follow:) STATEMFNT OF HON. STANLEY K. HATHAWAY, Govn~xoa or mu STATE OF WYOMING Mr. Chairman, I regret that I could not be present today to appear before your Committee, but the pressing business at the close of this session of the Wyoming State Legislature prevented me from making sucl~ a trip. I did want, however, to express before your Committee the great interest which Wyoming has in the development of oil shale and associated minerals. Secretary of the Interior TJdalI's announcement on January 27 of a five-point oil shale development program signals, we hope, a recognition by the Federal Government to bring our vast oil shale reserves into commercial production as soon as possible. In order that Wyoming may take its proper place in furthering the orderly development of this natural resource, our State Legislature by unanimous con- sent adopted a resoltuion recommending the appointment by me of a Wyoming State Oil Shale Advisory Boani. That resolutioti was signed by me on February 18 and this Oil Shale Advisory Board will be appointed at the earliest oppor- tunity. Among other things, I will ask that the Advisory Board submit recom- mendations to me guiding myself and the Legislature in the are~ of conserva- tiop reggl~tio~s and the proper policing of land, air, and water pollution. In annopncing the five-point program, Secretary Udall failed to make any mention of the role that affected states would play in the development of an oil shale industry. Affected states will, of course, be required to exercise their traditional police powers as well as provide for the many needs of rapidly grow- ing communities. Wyoming will welcome the opportunity to coordinate with the other affected states in establishing proper conservation regulations. In addition, Wyoming will not be unmindful of the requirement that taxing entities PAGENO="0056" 52 FEDERAL OIL SHALE PROGRAM must be formed and that community facilities and services must be provided In close coordination with the various stages through which an oil shale industry must pass before achieving its maximum growth. The known deposits of the Green River Formation cover vast areas of south- western Wyoming. The withdrawal of the federal lands over this formation has, of course, prevented the development of oil shale up until this time. The most recent withdrawal of lands from sodium leasing and further mining loca- tion will also serve to prohibit development unless these withdrawal orders are rescinded at the same time as the Department of the Interior announces its final leasing regulations. Wyoming, of course, would be strongly opposed to a con- tinued withdrawal of these lands after the 90 days that Secretary Udall has announced for his regulation publication timetable. To further bar the staking of mining claims an oil shale lands will greatly inhibit the ±uture development of Wyoming's many mineral resources in this area. Wyoming recognizes the great significance of water in the proper development of its oil shale reserves. In this regard it asks that Congress give full attention to the possible demands on the waters of the Upper Colorado River system. Such demands should, of course, be projected to 1980 and beyond for we are led to believe that significant lead time will be required before full commercIal pro- duction of oil shale is to be realized. Wyoming will vigorously request that its share of the Upper Colorado River water apportioned to it under the Upper Colorado River Compact be protected for such future mineral development needs. In summary, Mr. Chairman, let me say that Wyoming stands foursquare be- hind the immediate development of an oil shale and associated minerals in- dustry. My state asks only that it be given a fair opportunity to show its good faith in the future planning b~ all levels of government for this industry. We stand ready to coordinate and to cooperate with any and all government authori- ties. I would hope that such proper planning followed by development will now proceed without delay. Thank you. STATEMFINP OF HON. CALVIN L. RAMI'TON, Govr~aNoR OF THE STATE OF UTAH Prior commitments have made it impossible for me to personally appear at this hearing and I appreciate the opportunity of presenting this statement through Senator Frank E. Moss. We are making available for lease to private industry our State owned de- posits of oil shale and will continue to do so. We believe that the demand for energy will be such that conventional oil and gas resources will not meet our needs during the 1970's. Consideration of economic and national defense indi- cate need for development of a domestic, synthetic fuel program. We believe the program recently announced by Secretary of Interior could be a vital first step. We urge that the program be implemented to allow private industry to develop both the state owned and the federally owned oil shale reserves. We believe that the blocking up program announced as part of the Secretary's oil shale program should include the right of the State of Utah to exchange on an equal value basis scattered oil shale lands for blocks of federal land. The State then In turn could make these blocked lands available for development by private enterprise. At present, The Secretary has also suspended action on Indemnity Selection applications of the State of Utah. We believe the Secretary should permit the State to acquire oil shale lands from the Government pursuant to these selec- tions. S1~ATEMENT n~ HON. WALLACE F. ~ENNRTT, A U.S. SENATOR FROM THE SPATE OF UTAH OIL SHALE-A GREAT POTENTIAL Mr. Chairman and members of the Committee, I would like to thank the Com- mittee for this opportunity to present my views to this distinguished committee as it begins hearings on the Federal oil shale program and policies. It has been my privilege to testify before this Committee before regarding Oil Shale and to explain my views on this very important subject which has so PAGENO="0057" FEDERAL OIL SHALE PROGRAM 53 much great potential economic impact to the areas involved and which also may have a great bearing on our National Security. Since the last hearings held in May of 1965 the Interior Department has come forward with a so called Five Point program which would foster the oil shale development in Colorado, Wyoming and Utah. I was generally pleased with the announcement that the rnterior Depart- men has finally acted to take the first step toward unlocking one of the richest oil deposits in the world. I hope, however, that after almost 40 years of confusion and delay we are not merely getting into a situation where the Department is beginning to study how to start to commence as has been said of the Interior Department and oil shale. Mr. Chairman, I have felt for a long time that there have been three obstacles to early progress toward oil shale development 1. The lack of clear-cut and workable leasing regulations that could permit and foster development. 2. Uncertainty as to the validity of many of the mining claims which were filed many years ago and which are clouding the picture today. 3. Delays and problems confronting the economic development of oil from oil shale deposits. Of these items the third has been making the most progress toward solution while the other two have been bogged down in bureaucratic red tape. Now it appears that some of that tape might be cut as result of the new policy decision banded down in January. However, before any concrete state- ment can be made or before this Committee can decide exactly which direction the Interior Department plans to go a study must be made of ~he regulations which the Secretary of Interior promised (in Point Three) within 60 to 90 days when we will see the administrative details of leasing procedures. I am sure that Congress, private industry and all concerned with our national security will await the Interior Department details on the proposed leasing program with a great deal of interest. Although it remains to be seen I will be particularly interested in just how many Federal strings will remain attached to the land in question and in knowing whether the Administration has chosen to inhibit rather than to pro- mote the cooperation of private industry into this very important field. In addition, I am wondering about the question of state indemnity selections which play such a major role in the Utah land picture. I hope that the Secre- tary, as result of these new policy statements, will come forward when the regulations are printed and expedite the indemnity selections that the State of Utah has requested. It is my feeling that the government should immediately make certain areas available to private concerns for development. A logical beginning would be an area where there is intermingled state, Federal and privately held fee land. Oil companies and others have requested or applied for leases on more than 100,000 acres of Federal oil shale lands. In Utah, practically all of the oil shale lands owned by the state-some 160,000 acres, were under lease at the end of 1963. The opponents to an immediate leasing program maintain that we have not traveled far enough in the research and development area, They say that more research is required before we will be able to open up this industry. Private industry claims it has the methods and that all it needs to get going is someone to cut the red tape. I maintain that we should allow private industry to prove its claims and let us not hide behind a curtain called "lack of research and development." Mr. Chairman, in conclusion I would like to say that I hope, at long last, that we are on the road to clearing up some of the confusion that has been created by changing attitudes in this entire oil shale area. The subject has been studied almost to death by almost every branch of the government. One o~ the major problems has been the failure by the govern- ment to act as quickly as it should have so that the development of this resource would not have to commence under the pressure of shortages or merely to conditions of the day. I would hope that we can proceed in the orderly and equitable development of this industry in an indepnedent and positive manner based on careful and comprehensive policies that will give oil shale a chance. Thank you, Mr. Chairman. PAGENO="0058" FEDERAL OIL SHALE PROGRAM Senator Moss. Our next witness is Capt. Howard Moore, of the U.S. Navy, who is director of the Naval Petroleum and Oil Shale Resources. We are pleased to have you with us, Captain Moore, and we will ask you to proceed. STATEMENT OP CAPT. HOWARD MOORE, U.S. NAVY, DIRECTOR OP NAVAL PETROLEUM AND OIL SHALE RESOURCES; ACCOMPANIED BY LT. COMDR. HUGH CRISP, AND EUGE~NE BOWLER Captain MOoRE. Mr. Chairman, may I have a couple of the mem- bers of my staff? Senator Moss. Would you identify them and have them sit with you, sir? Captain MOoRE. Lt. Comdr. Hugh Crisp- Senator Moss. Glad to have you here. Captain MOORE (continuing). Mining engineer and petroleum en- gineer; and Mr. Eugene Bowler, petroleum engineer. Senator Moss. Mr. Bowler, happy to have you. You may ~roceed as you care to do, Captain Moore. Captain MOORE. Mr. Chairman, I have a prepared statement, if I may read it. Senator Moss. It will be perfect~Ey proper for you to read the state- ment if that is the way you would like to begin. Captain MOORE. Mr. Chairman and members of the committee, I am Capt. Howard N. Moore, U.S. Navy, Director of the Naval Petroleum and Oil Shale Reserves. I appreciate this opportunity to appear before the committee to present the position of the Navy De- partment in regard to the development of oil shale as a commercial energy source. In particular, I will make reference to the five-point program recently announced by Secretary of Interior Udall for economic development of this valuable natural resource. It is perhaps appropriate first to explain the basis for the Navy's role and interest in oil shale. Between 1916 and 1924 some 145,000 acres of public land were set aside by Executive order for the exclusive use of the Navy as oil shale reserves. Two of these reserves are located in Garfield County, Cob, and a third is located in Carbon and Uintah Counties, Utah. The total acreage comprising the naval oil shale reserves is approximately 2 percent of the federally owned oil shale lands in Colorado and Utah. Congress, by statute, placed these oil shale reserves in the custody of the Navy with the specific mandate to maintain them for future use in the event of a national emergency. These reserves, like the naval petroleum reserves, may not be produced commercially until the Secretary of the Navy, with the approval of the President, finds that production is needed for national defense and is authorized by a joint resolution of Congress. The statutory basis for the Navy's control of the oil shale reserves is now codified in title 10, United States Code, sections 8421-8438. For some years the Navy has consistently supported and encouraged efforts being made by other branches of the Federal Government and private industry to advance technology to the point that shale oil PAGENO="0059" FEDERAL OIL SHALE PROGRAM 55 could become competitive with other types of fuels. It is obvious from the standpoint of national defense that if the oil shale reserves are to make a significant contribution, there must exist at that time a viable oil shale industry. It is unlikely that sufficient time or re- sources will be available during a full scale emergency for develop- ment of such an industry. In addition, the vast amount of liquid fuels which may be made available through a going oil shale industry will greatly decrease, if not eliminate, any wartime requirement to import conventional fuels by sea. This is of great importance today because present trends indicate the TJnited States is becoming a crude deficient nation and may in the future be forced to rely more and more upon imported fuels to meet even peacetime demands. For these reasons, the Navy fully supports Secretary TJdall's five-point pro- gram as a sound basis upon which the first steps may be taken toward the orderly development of oil shale on public lands. I will attempt to specifically relate each of the points included in the program to operations on the naval oil shale reserves. TOINT I. ACTION TO CLEAR TITLE TO THE PUBLIC OIL SHALE LANDS IN COLORADO, WYOMING, AND UTAH Today, the private right to develop the public oil shale lands can only be acquired under the terms of the Mineral Leasing Act of 1920. Large numbers of unpatented mihing claims covering the oil shale lands presently make leasing of these lands rife with potential legal difficulties arising out of disputed ownership. The naval oil shale reserves are now relatively free from title dis- putes. We are working with the Department of the Interior to clear the few disputed titles remaining on reserve lands and excellent prog- ress has been made to date. The primary interest of the Navy with this part of Secretary TJdall's program is that settlement of these disputed claims on public lands will remove an obstacle to the orderly development of an energetic oil shale industry. Not until this in- dustry has been developed will the naval oil shale reserves become a meaningful asset. POINT II. PLAN TO PERMIT BLOCKING OF OIL SHALE LANDS INTO WORKABLE UNITS Mr. C. E. Reistle, chairman of the board of Humble Oil & Refining Co., in his speech before the 95th Annual Meeting of AIME (Ameri- can Institute of Mining, Metallurgical, and Petroleum Engineers) on March 1, 196~, gave some basic indication of the economic parameters limiting the development of a commercial oil shale industry. He said: There are two major methods that are being studied for getting oil out of the shale: (1) mining and retorting and (2) in situ retorting. Work is going for- ward on both methods; one or both may ultimately prove to be economically feasible. Using the mining and retorting method, a minimum shale oil plant is believed to be one which will produce at least 50,000 barrels of oil per day. Such an operation involves mining, crushing, and retorting S0,000 tons of shale per day. Capital investment in such a plant, including upgrading facilities. wOuld he in the order of $100,000,000. Projecting Mr. Rei~tle's figures leads one to conclude that an eco- nomic unit of shale for commercial retorting would have to include PAGENO="0060" 56 FEDERAL OIL SHALE PROGRAM reserves of about 1 billion tons of minable shale of 15 gallons per ton or better richness; or viewed from a different angle, recoverable oil reserves of at least 365 million barrels. Our studies to date indicate support for the view that the huge capi- tal investment will, from the standpoint of economics, require that any regulations promulgated take this factor into consideration. Al- though the Navy is not directly concerned, it does recognize the im- portance of permitting the blocking up of Federal oil shale lands into economically attractive units, and so would endorse it. POINT III. PLAN TO CONSIDER PROVISIONAL DEVELOPMENT LEASES We now support utilization of the Anvil Points facilities on Naval Oil Shale Reserve No. 1 by the Colorado School of Mines Research Foundation as a means of making these facilities available for experi- mental retorting. Under an agreement specifically authorized by existing law, shale from the reserve is now being used by private in- dustry at the Anvil Points plant. Private industry has already expended some $2.7 million in this undertaking, and a $4.5 million expansion of the basic research pro- gram there is currently underway. Senator* ALLo~. Mr. Chairman, would you permit me to make a point clear which Captain Moore has not quite made clear. This para- graph you just read does not make clear that this shale from the naval reserve can only be used for purposes of research and not pro- duction. That is correct, is it not? Captain MOORE. Yes. The law prevents any commercial use of the shale to date. Senator ALLOTT. Your paragraph does not make that clear and I wanted to be sure that was in the record at this point. Captain MOORE. Thank you, sir. This program indicates the feasibility of the approach suggested by Secretary Udall's third point. If the regulations and provisional development leases issued contain the requirements outlined in his an- nouncement, it appears to me that research and development programs will be assured at the same time the holding of the great bulk of these lands for purely speculative purposes will be prevented. POINTS IV AND V. ARC ASSISTANCE AND FUNDS FOR RESEARCH The cost of mining and handling large volumes of shale by surface retorting processes and the problem of disposing of spent shale on the surface make the development of some efficient type in situ retort- ing process highly desirable. The use of atomic explosions under- ground is one approach to this problem. The atomic explosion itself will be expensive, and as yet there is no evidence to indicate that in situ retorting of oil shale is physically practical. In this connection several questions need to be studied: (1) Can currents to carry oxygen to the combustion chamber be maintained? (2) Can permeable channels or fractures through which the re- torted oil can flow to wells be opened and maintained? (3) Can the size and location of the combustion zone be satisfac- torily controlled? We would assume that small scale, conventionally fired in situ re- torting experiments first would be carried out to assist in finding the PAGENO="0061" FEDERAL OIL SHALE PROGRAM 57 answer to these questions. We believe the shale beds on the naval reserves are too shallow to be safely or productively utilized for atomic experiments. However, some of the older mine workings on Naval Oil Shale Reserve No. 1 might be utilized for any limited underground retorting experiments which might be required prior to engaging in major atomic undertakings elsewhere. It is possible that an atomic device will not prove practical for use in the in situ retorting of shale oil, and certainly not in all locations. As previously alluded to, one of the major problems to be solved in in situ retorting is the creation of an extensive fracture system through which fluids can flow. Oil shale is a dense, impermeable rock in its native state. Conventional hydraulic fracturing techniques known to the oil industry today may not be applicable because they create a few large fractures, and what will be needed for in situ processing of oil shale is a highly fractured, broken rock zone. The Bureau of Mines is studying explosive fracturing methods whereby a liquid explosive is pumped into the rock, following small fractures or fissures back into the formation, and then detonated. Preliminary results from this process look promising. The Navy has modestly supported this re- search with funds for several years and has offered to provide a loca- tion on Naval Oil Shale Reserve No. 2 in Utah for field tests of this process in an oil shale formation. In connection with anticipated research, the matter of spent shale disposal is of considerable interest to us. Unless vast piles of spent shale are to spoil the landscape as a result of oil shale mining and surface retorting, a research effort must be undertaken leading toward some practical means for the economic utilization or disposal of spent shale. In conclusion, I would like to state that my office stands ready to as- sist this committee, the Department of the Interior, and industry in carrying out this oil shale program in any way consistent with legisla- tion `controlling the naval oil shale reserves. This is the end of my prepared statement, however, members of my staff and I will attempt to answer any questions you may have on this matter. Senator Moss. Thank you, Captain Moore, for a very fine statement. It answers one or two questions I had in my mind about the extent of the naval reserve holdings. I understand it is about 145,000 acres. Captain MooRE. That is right, sir. We only have approximately 12 billion barrels of recoverable oil on shale reserve No. 1 and about 3.8 on Naval Shale Reserve No.2 in Utah. It is relatively small compared to the whole basin. Senator Moss. Has the mineral entry been forbidden also on the naval reserve? Captain MooRE. Yes. Our interpretation of the law, Senator Moss, is that when withdrawn, it be withdrawn for exclusive use of the Navy. At least in 1962 administration over it was given, by the legislation to which Senator Allott referred, for all purposes to the Secretary of the Navy, so we think that the dawsonite claims and nahcolite claims that are filed are not valid with respect to the reserves. We don't know of any valid ones there to date. Senator Moss. Well, are there some that have been filed that will have to be contested legally to determine it? Captain MooRE. There are approximately 87 claims. The Depart- ment of the Interior has by administrative action rid itself of 70- PAGENO="0062" 58 FEDERAL OIL SHALE PROGRAM some-odd. There are approximately 6,000 now in litigation, and the, same group that I think the Solicitor mentioned recently. I think the remaining claims cover about 870 acres. So it is a small part. Senator Moss. And the Navy has continued to cooperate with, and to some extent participate in, research and extraction of oil from shnle, but made no effort to produce any oil for any military or corn- meicial channels? Captain MOORE. We are precluded by law from doing so until there is a national emergency. Senator Moss. Well, we may have had one or two in the last few years but you have not produced any. Do you have any questions, Senator Allott? Senator ALLOTT. Yes. Captain, I want to congratulate you on your statement because I think you have pointed out some of the questions which other people have not pointed out to date and which have not been highly developed. No. I, I assume it is your point of view-it has been mine for a long time-~-that the development of a viable oil shale industry is a neces- sity for the national defense and the national welfare. Captain MOORE. It certainly is, Senator. Senator ALLOTT. And I assume also, although you don't say this specifically, that the time is now, because the leadtime for the develop- ment of such processes, whether they be, you say in situ or by retort are going to require a long leadtime and the investment of vast amounts of money. Captaiii Mooi~E. Yes, sir. Scuator ApLOTT. You have estimated from the figures given by the chairman of the board of one oil company that it will cost a hundred million dollars capital investment to establish one 50,000-barrel retort in this area. Now, this fact-and this is the same figure that has been used by others-alone is of necessity going to influence any ]easing policy de- veloped by Congress, is it not? Captain MOORE. I would think so. Senator ALLOTT. In other words, you can't take a little dab of oil or a little dab of land and lease it arid expect someone to make a hun- dred million dollars investment in order to develop this land. Captain MOORE, No, sir. The only way he could profit at all, a small man, would be to supply a larger retort from his land. Senator ALLoTT. One last question for you, sir. There have been some very optimistic and perhaps rose-colored statements this morning about nuclear in situ development, and of course we all hopefully look forward to this, but you say on page 3 of your statement that there is no evidence to indicate that in situ retort- ing of oil shale is physically practical. Now, the only point I want to make is that the present point of time, in this given area, we are literally like a baby taking its first step, are we not? ( ~ pto iii )\io' )i~E. `ies, SJ1'. tor A ri.rrr. \i1 ii il uit ti ic uric] en ~ expel' imentq, G nsbuggv a ml (~ H'j''~ ~ hut ui'e no\v on the drawing I on i'd---oud 1 know von ole 1 0 n~ Ed \vi1Io others iri this ar~a. nithonuth riot in the oil shole-- o i(~ (01 lv Ii i'st steps oward ti-yirig to develop siieh EL 10(055. `ion EL LE acqnui nted with the liii] 15011 pi'ojet't. 010 yOu riot ? PAGENO="0063" FEDERAL OIL SHALE PROGRAM (~ipta iii i\iooRE. ~. * - - .0 liii have not ( going to be a matter of ye~... You have also brought out at one point, i don't know .. r i lay my hands on it, about the control, conventional control, of pro- ducing oil by in situ retorting. Does this not suggest the possibility that in formulating a lea~ policy in this area, the lease policy may have to be governed more, or the lease policy would have to consider-let's put it that way-the formation itself rather than the conventional land descriptions upon which we have formulated oil and gas leases? Captain MooRE. If you mean, Senator, that burning the oil shale can't be controlled, from what I have read of technology, I don't think there is any question but what it can be controlled. From what I have read on this subject, what I ~was referring to is that it is not yet known that the burning in a-we'll say a capsule or in a chim- ney-can be controlled to make it efficient in that one unit. I have not heard anybody express any great- Senator ALLOTT. Let me put this question in another context for you. It is true that you can coiitrol the size and the length of a chimney by nuclear explosion, and this is the concept that is now being considered. But isn't it just as true that in considering such a con- cept, you may be also talking about leaving a great percentage of the oil available in the ground because the chimney will be roughly a circular pattern? So this brings me back to my question. We might have to consider the formulation of a leasing policy based upon formations and structures, rather than the conventional legal descrip- tions with which we have granted oil and gas leases. Captain MOORE. I think that is true, Senator. Senator ALLOTT. I am sure you will join with me in saying, that it would be unthinkable that we hurry hastily into any method of de- velopment which would leave large amounts of this valuable resource in the ground. Captain MooRE. Certainly, sir. Senator ALLOTT. I have heard it said, and I may have the wrong figure-perhaps you can correct me-that in general, over the United States., of the liquid petroleum formations we have tapped, we have had to leave about 25 percent, on an average, in the ground. Is this approximately right or do you know? Captain MooRE. I will ask one of my staff members. I think it is low but I will ask. Mr. Bowler says that, ~tfter secondary recovery, we leave about 2~ percent in the ground. . . Senator ALLOTT. So if we are talking about 600 billion barrels as the Secretary did earlier, it would be unthinkable that we would leave 150 billion barrels of that in the earth unrecoverable, untappable, unusable, if by thought and planning we could extract it in such a PAGENO="0064" 60 FEDERAL OIL SHALE PROGRAM way that we could lower that 150 billion barrels to 20 billion or 80 billion or 40 billion. Captain MooRE. That is true, but there is going to be some loss in any method. Even the room and pillar method leaves a large per- centage. Senator ALL0TT. This is correct, but even in that particular method, it is now contemplated that they would go back and extract the pillars and utilize them. But the point I am making is that I think it would be unthinkable if we barge ahead like a bull in a china closet without realizing that, in addition to the other conservation measures that we have to prac- tice-water pollution held to the minimum, landscape despoilation held at a minimum-one of the other great conservation practices that we have to consider here which has not been p~ientioned this morning is the leaving of a valuable or a significant part of this in the ground. You would agree to this? Captain MOORE. Yes, sir. Senator ALLOTT. Thank you. Captain Moom~. And, Senator, I emphasized it in my paper, but maybe not strongly enough. There should be more than one method of extraction. These 200-billion-barrel claims that the private oper- ators have are on thin land and atomic explosions, I don't think, are ever going to extract these. Naval oil shale reserves are on thin veins and maybe someday we will be able to extract oil from them with atomic explosions but there should be simultaneous- Senator ALLOTT~ Yes, and as a general rule, these do not lie in the richest deposits. Do I understand from your statement, and I think I do, that the naval reserves do not extend into Wyoming? Captain MOORE. No, sir. Colorado and Utah. Senator Moss. The Senator from Wyoming, any questions? Senator HANSEN. I don't have any questions. I just might observe that I share the concern of the senior Senator of Colorado in your stressing the importance of this leadtime. I bring up very properly, I think, that if we are to have an industry developed that can assist us in times of national emergency the time is now to start work on that undertaking. We may well be deprived of the opportunity later on, and I would just like to commend you, sir, for stressing that point. I think it is most important. Senator Moss. Thank you very much Captain Moore and gentle- men. We appreciate your coming before the committee and giving us this testimony. Captain MooRE. Thank you. Senator Moss. We will endeavor to hear one more witness before we recess the hearing. John S. Kelly, Director of the Division of Peaceful Nuclear Explo- sives of the Atomic Energy Commission, will be our witness now. STATEILENT OP JOHN S. KELLY, DIRECTOR, DIVISION OP PEACEPUL NUCLEAR EXPLOSIVES, ACCOMPANIED BY 3 KEITE DAVY, ATOMIC ENERGY COMMISSION Mr KELLY I have Mr Davy, of my staff, with me Senator Moss. Mr. Davy, we are happy to have you. PAGENO="0065" FEDERAL OIL SHALE PROGRAM 61 You may proceed. Mr. KELLY. I have a prepared statement which I will read if that is appropriate. Senator Moss. All right; if you wish to. Mr. KELLY. Mr. Chairman, I am happy to appear before this com- mittee today with respect to the Department of the Interior's five point oil shale development program announced by Secretary Udall on Jan- uary 27, 1967. As you know, point four of that program involves the cooperation of the Atomic Energy Commission in research and devel- opment activities designed to investigate the capability of under- ground nuclear explosions to break oil shale for subsequent retorting in place. The AEC will be glad to continue its cooperation with the Department of the Interior in this very worthwhile undertaking. The AEC has been working for a number of years with agencies of the Department of the Interior, primarily the U.S. Bureau of Mines, on studies and proposed applications of nuclear explosives for peaceful purposes as part of our Plowshare program. These joint cooperative studies have been concerned with the poten- tial of our developing Plowshare technology for utilization in increas- ing the recovery of this Nation's natural resources. We have been particularly concerned about such resources as oil, natural gas, and copper, which occur under conditions where conventional recovery methods are not economical or do not exist. One aspect of the jointly funded AEC-Interior research effort, which began in 1963, involves an attempt to determine whether nuclear explosives can be used to advantage in breaking up oil shale followed by restoring the broken shale in place. Results of these experiments are encouraging and lead us to believe that the use of nuclear explosives may provide an economical, efficient, and practical means for recovering and utilizing our vast, though latent, oil shale resources. These experiments have primarily involved aboveground retorting of suitable size material by the U.S. Bureau of Mines and site investigation and definition activities of the oil shale deposits with the U.S. Geological Survey and the U.S. Bureau of Mines. I will defer to the Department of the Interior as to the significance of the results of this work to date. As you will recognize, the role of nuclear explosives in the develop- ment of a technology for the recovery of oil from shale is related to ~he ability to break and fracture large masses of rock. In short, the Aiuclear explosion acts as an underground rock crusher after which we hope that in-place retorting techniques can be applied and the resultant liquid oil pumped to the surface. A nuclear explosion initially generates a shock wave, heat, and pressure which vaporize the rock to form a cavity that grows until the pressure inside the cavity equals that of the surrounding material. As the cavity growth stops and begins to cool, pressure inside the cavity decreases and the fractured rock, in most cases, begins to fall to the floor from the ceiling and walls, resulting first in the forma- tion of a crudely hemispheric room. However, this spallation or col- lapse of the fractured rock continues progressively upward until a stable configuration is reached, usually in the form of a tall cylinder or chimney of broken rock. I have a chart attached to this statement which illustrates these steps. (Chart 1 follows:) PAGENO="0066" CAVITY CAVITY C HIM N EY. FORMATION HISTORY ~,-VApornzED ROCK ~MELTED ROCK 5510CR WAVE 3 MSEC STRONG COMPRESSIONAL 0 I 300 MSEC FIV4AL CONF:GURATION PAGENO="0067" FEDERAL OIL SHALE PROGRAM 63 Mr. KELLY. The second chart depicts some of the resultant chim- neys formed in different types of rock. The size of the chimney generally depends on the size of the explosion, the depth at which it occurs, and the kind of rock. (Chart No.2 follows:) POST SHOT CAVITY - C H IMN EY PROFI LES GNOME - BEDDED SALT / 1' /I HAN DCAR HARDHAT SALMON [U GRANITE (000000IOOFTE) DOME SALT o 90 LL1~ `UT METE 00 Mr. KELLY. I have another chart which indicates graphically how the nuclear in place retorting of oil shale might operate. (Chart No. 3 follows:) PAGENO="0068" 02 0 0 IN-SITU RETORTING-OIL SHALE MULTIPLE ARRAY-PLAN VIEW SURFACE RECOVERY PlANT £ AlIEN JOELOUT ~ 1OIL COUECTEON LINE I SEPARATOR EXHAUST ._J?=1 - CLEANER * %/~~COMPRESSOR *AtR IN - ~ WELL 1BURNT SHALE OIL SHALE o 500 FRET 0 TOO MEYERS OIL SHALE / ~- lORRY RETORT PAGENO="0069" FEDERAL OIL SHALE PROGRAM 65 Mr. KELLY. It shows the chimney created by the nuclear explosion, the injection of compressed air necessary to support combustion, the advance of the combustion zone through the rock fragments which de- composes the kerogen and the recovery of the petroleum products at the bottom of the chimney. The geological medium or rock type in which the explosion occurs is, of course, an important factor in determining what will result. There has never been a nuclear explosion to date in oil shale; however, we have conducted many nuclear explosions in several other types of rock and have successfully extrapolated the results from one type of rock to another, We have experience to date in six types of rock in- cluding alluvium (deposits of unconsolidated sand and gravel), tuff (cemented volcanic ash), salt, basalt (solidified lava flow), grandiorite (granite), and dolomite (carbonate rock). The latter is chemically similar to oil shale. A seventh rock type in which we expect to gain experience soon is the gas bearing sandstone occurring in the pictured cliffs forma- tion underlying the San Juan Basin of northwestern New' Mexico where we plan to conduct Project Gasbuggy, which has been referred to earlier, in cooperation with the El Paso Natural Gas Co. and the Department of the Interior. The Gasbuggy experiment is a test of whether nuclear explosions can liberate large amounts of natural gas held in geologically tight underground formations which have a low permeability. Information obtained from Gasbuggy will be of con- siderable value to us in planning for a specific oil shale experiment utilizing nuclear explosives. The staff of the AEC and the U.S. Bureau of Mines only very re- cently began a detailed feasibility study regarding the use of nuclear explosives in oil shale in connection with some 25 companies in the oil and gas and related industries represented by the CER Geonuclear Corp. of Las Vegas, Nev. A list of these companies is submitted for the record. (The document referred to follows:) COMPANIES CURRENTLY PARTICIPATING IN OIL SHALE COMBINE ORGANIZED BY CER GEONUCLEAR CORP. Ashland Oil & Refining Co. Shell Oil Co. Atlantic Richfield Co. Sinclair Oil & Gas Co. Cameron & .Jones, Inc. Sohio Petroleum Corp. Cities Service Oil Co. Sun Oil Co. Continental Oil Co. Superior Oil Co. El Paso Natural Gas Co. Tenneco Oil Co. Equity Oil Co. Texaco, Inc. Getty Oil Co. The Cleveland-Cliffs Iron Co. Humble Oil & Refining Co. The Oil Shale Corp. Marathon Oil Co. Union Pacific Railroad Corp. Mobil Oil Co. WesternOil Shale Corp. Murphy Oil Corp. Wolf Ridge Minerals Corp. Pan American Petroleum Corp. Mr. KELLY. It is expected that the feasibility study report can be ç~ompleted and a report published later this year. Such a report, when completed, may form the basis for any formal proposal the CER corn- bine would wish to make to the Government In the event such a proposal were made, a very precise evaluation of the technical, safety PAGENO="0070" 66 FEDERAL OIL SHALE PROGRAM and other factors of a specific project would be undertaken by the De- partment of the Interior, the AEC, and AEC contractors, including the Lawrence Radiation Laboratory at Livermore which is operated by the University of California. I would like to thank you for this opportunity to appear to discuss the AEC's Plowshare program as it relates to the oil shale industry. I will be happy to try to answer any questions you may have. Senator Moss. Thank you, Mr. Kelly, for your very fine paper and illustrations attached to the mimeographed copy which gives an explanation. Secretary Udall said that in his opinion the question of using nu- clear explosives for retorting oil shale in sitn was in the early plan- ning stages. Is that about the way you would describe it? Mr. KELLY. Yes, sir; I think that is a very apt description of the status. Senator Moss. I understand from your statement there has not ac- tually been any underground test made at all in oil shale rock. Mr. KELLY. That is correct. We have fired in six other types of rock but not in oil shale. Senator Moss. The only real experience you have is to extrapolate from one type of rock over into the type that contains the kerogen; is that correct? Mr. KELLY. That is correct, Senator Moss. Is the rock generally quite dense in which kerogen occurs or does this vary? Mr. KELLY. Yes. I believe that would be categorized as a dense rock compared to some of the ones that we have conducted tests in. Senator Moss. The Senator from Colorado was commenting that the rock in which Gasbuggy project is being worked is very tight, a very dense type of rock. Is this more dense than the kind that we find in the oil shale area? Mr. KELLY. I would guess that they were comparable but I would have to look this up and give you a more precise answer. (The information requested appears on p. 71.) Senator Moss. Has there been any determination yet made as to where the location would be for the first actual test of an underground explosion in oil shale? Mr. KELLY. No site has been selected. This is something that has been discussed and some criteria have been developed for what would be an appropriate site but no particular point has been selected. Senator Moss. Has there been enough advance discussion or plan- fling from which you can give us any rough kind of timetable when you would expect that you could carry out the first experiment? Mr. KELLY. Well, I think that Secretary Udall's estimate of 2 to 3 years is probably pretty good. It depends a little bit on how the results of the Gasbuggy experiment turn out which we hope to conduct next summer or early fail. It depends also on how fast the industry wants to go, and a host of problems like this that we can't accurately anticipate. Senator Moss. But this is under active work by the AEC now. You are actively working on this, developing the plans for this test------ Mr. KELLY. Yes, sir. PAGENO="0071" FEDERAL OIL SHALE PROGRAM 67 Senator Moss (continuing). Of in situ retorting. Mr. KELLY. Let me say the nuclear explosion merely crushes the rock and the in situ retorting is an operation that follows the nuclear explosion. Development of the retorting process is primarily being done by the Bureau of Mines. Senator Moss. Would the same energy that fractures the rock and develops the chimney also furnish the heat that would extract the kerogen from the fractured rock? Mr. KELLY. No, sir. Senator Moss That has to come in addition to this ~ Mr KELLY There is tremendous heat released by the nuclear ex plosive. The temperatures are far too high for retorting and they are far too localized for retorting. What probably would be done is to actually locate the explosive below the shale formation so that the heat energy would be expended in inert rock and allow the chimney to progress up through the shale and then to artifically, probably chemically or electrically, ignite the heavy carbon fractions and inject oxygen to sustain the combustion for retort. Senator Moss Thank you The Senator from Colorado. Senator ALLOTT. I have two or three areas I would like to ask you about, Mr. Kelly, if I may. The first relates to the formation in the Piceance area. It is my understanding, I am sure I am correct about this, that in the tests in that area, they have run across large amounts of water which are saturated with sodium bicarbonate or baking soda as it is ordi- narily called. Isn't it a fact that these are more susceptible than ordinary water to the absorption of nuclear activity? Mr. KELLY. I don't know the answer to your question right off- hand. I don't know of any reason why they should be, but I think this is something I would have to ask one of our laboratory people about. Senator ALLOTT. I wonder if you would do that? Mr. KELLY. Yes, sir. Senator AILoT2. And supply a short statement for the record. (The information requested is printed on p. 71.) Mr. KELLY. Yes, sir. Senator ALLOTT. Assuming this is true-and I have been told that it is, that sodium particles are more apt to absorb the effects of radi- ation than ordinary water-but assuming this is true, have you con- sidered the effect that such an explosion would have upon under- ground streams? Mr. KELLY. Yes, we have. Let me go back to your question on the sodium a moment ago. What you may have been referring to is the fact that sodium 24 is a highly radioactive substance and ordinary sodium, if bombarded by neutrons, would be artifically transformed into sodium 24 which is radiocative. If one fired a nuclear detonation in such water that the neutrons reached the sodium in the water, you could artifi- cally activate that sodium and make it radioactive. PAGENO="0072" 68 FEDERAL OIL SHALE PROGRAM However, in no case would one fire a nuclear detonation in water. You have to arrange the detonation, its point of explosion, under conditions such that it would not reach the water, and I believe that one can do this by judiciously selecting a detonation site. Senator ALLOTT. Roughly what temperature would be generated at the source of the explosion? Mr. KELLY. Oh, the initial temperature released by a nuclear ex- plosion is in the order of a few million degrees. Senator ALLOTT. Two? Mr. Kniax. A few. Senator ALLOTT. A few million? Fahrenheit or centigrade? Mr. KELLY. Either one. It would be high enough that it would be in the range of several millions Fahrenheit or about half that by centigrade. Senator ALL0TT. All right. On chart 1 you envision a typical double chimney and what would you envision the height of that chimney to be? Mr. KELLEY. Well, that depends on the type of rock, the depth of burial. Senator ALL0TP. We are talking about shale. Mr. KElLY. All right. Senator ALLOTr. I am only talking about shale. Mr. KELLY. I guess one of the experiments that has been conducted which is fairly similar to this shale, in at least~its physical character- istics, was a shot in granite and it was 5 kilotons and the point of detonation if I recall correctly was about 900 feet underground and in that case the chimney height was about 300 feet. Senator ALLOTT. Well, I am not trying to trap you, but I am sure you see the point I am making which is that if you fired this, even under the oil shale bed, and your explosion reaches into areas with soda water, you take a chance of contaminating that particular supply or source of water. If that water is not in a closed basin and later reaches a major c~rainage area, then you are dabbling with the prospect of contaminat- ing water supplies. Has this been given any thought? Mr. KELLY. Yes, sir. If you notice on that same chart, down at the very bottom of that chimney there is a very dark area, and most of the radioactivity that is prodixced by the nuclear detonation winds up in an insoluble fused rock. It is imbedded in the fused rock which collects at the bottom of the chimney, and so even if water after the fact somehow got through there, the radioactive materials in this fused rock zone would not be readily available to the water. There is some small amount of radioactivity, mostly in the form of gases and very small particles that would permeate the chimney. If water got into that, these particles could be picked up and to some extent follow the flow of water. One would have to be ex- tremely careful so as to prevent a flowing water source from passing through this chimney or, in other words, be very careful to make sure the chimney did not extend into an underground acquifer. Senator ALr~orr. The very area we are talking about that has been d]scussed most this moining `~s q pos~ihi1ity foi nucle'tr test is ex PAGENO="0073" FEDERAL OIL SHALE PROGRAM 69 actly this kind of a site where you do have underground waters of considerable volume, and I just want to raise these questions because other people will ask them. Have you given consideration as to what might happen when you expose a large amount of oil shale to heats of several million degrees, whether it is Farenheit or Centigrade, containing a large amount of hydrogen, as to what effect this would have upon the l~orce of your explosion? Mi KELLY Yes, sir This has been considered and in fact we did an experiment on our test site, the Ilandcar experiment in November of 1964, and our carbonaceous rock with some of those kinds of ele- ments just to make sure that there were no extraneous effects such as a hydrogen explosion. I might point out that the very intense temperatures only occur in a very small zone, the inner circle on this upper left hand figure of my chart 1, which only extends out for a few meters. Senator ALLOTT In your dolomite explosion, using that as an ex ample, on chart 2, what was roughly the cross section of your rubble structure? What would be the diameter of it? Mr. KELLY. This is Project Handcar, Its dimensions across are roughly 140 or 150 feet and its height is roughly twice that. Senator ALLOTT. Now, moving on to your third chart which very graphically displays the method your propose to utilize-your mul-~ tiple array with your various explosions with holes drilled for air injection-this is very similar to the method that was employed in Spain or Sweden for the extraction of oil from oil shale, there where holes were drilled close to each other and artificial heat units were introduced into the bottom of the hole and the oil was pumped out of another hole. Are you acquainted with that method? Mr. KELLY. Not with those particular ones in Spain. Senator ALLOTT. I am not sure whether it was Spain or Sweden. Mr. KELLY. I know there has been a fair amount of this kind of research going on; yes, sir. Senator ALLOTT. I think that is all I have, Mr. Chairman. Senator Moss. The Senator from Wyoming; any questions? Senator HANSEN. I am quite impressed with the problems that you have been discussing, Mr. Kelly. I was just wondering if you have any idea when Projects Rulison and Dragontail will be budgeted and what you think they should be budgeted for? Mr. KELLY. Well, Dragontail and Rulison are both gas stimulation type projects similar to Gasbuggy as opposed to oil shale. I think the budgetary problem is one that depends in part on how much it turns out when you get the Dragontail proposals and Rulison evaluated as to how much the cost is, for the Government part of it. If it is relatively small you probably can get it soon. If it is larger, it is going to come later. Senator HANSEN. What is the status of the cancellation or the de- ferral of the present Plowshare projects in Nevada? Mr. KELLY. Well, that was a cratering shot designed for the de- velopment of a nuclear excavation technology for digging canals, highway cuts, harbors, and that sort of thing. PAGENO="0074" 70 FEDERAL OIL SHALE PROGRAM I don't think its deferral should be related or would be related to these kinds of things. In that cratering situation one does break the surface of the ground. Fairly significant amounts of rock are thrown into the air and accompanied by some small amounts of radioactivity, * and this, of course, is a much more controversial process than the gas and oil applications in which it is not contemplated that the surface of the ground would be broken at all. Senator HANSEN. In your mind, then, this will not inhibit or hold up any future development insofar as the oil shale is concerned? Mr. KELLY. Yes, that is right. These are quite different `and they are much less controversial and there are fewer reasons for deferring this sort of thing than there would be in the excavation type. Senator HANSEN. I was interested in some of the testimony-I have forgotten whose now-this morning to the effect that it was not yet known what effect an atomic explosion might have on the recovery of these other associated minerals, such as dawsonite. I noted that the Secretary said quite forthrightly that in his opinion the Peceance area in Colorado would be the logical place for an atomic explosion. Do you think that it might be indicated that a little testing some- place else where dawsonite was not associated with the oil shale would be indicated in order to see if this type of approach would serve to help in the recovery of a lot more shale without disturbing the miner- als that might be adversely affected insofar as their recovery is con- cerned by an atomic explosion? Mr. KELLY. Offhand I would think so, sir. We clearly support the Secretary's objective of trying to develop technology for recovering the kerogen and the dawsonite and I don't know that the two are in- compatible. On the other hand, I don't know that they are not, either. Senator HANSEN. Thank you, Mr. Chairman. Senator Moss. I have just one more question. Do you have one more, also, Senator Allott? Senator ALLOTT. In the Gasbuggy situation I understand, of course, that the actual control of the explosive would be entirely under the Atomic Energy Commission. Mr. KELLY. That is correct. Senator ALLOTT. Do you know to what extent the Department of the Interior controls the rest of the experiment or is that under the control of the private companies who are financing it? Mr. KELLY. Well, the Atomic Energy Commission has the respon- sibility of conducting the detonation and for assuring that it is done safely and that sort of thing. The Department of the Interior rep- resents the Government on evaluation of the gas formation and the change that takes place in it. Of course, the industry likewise, for that is the part they are really interested in, too. Senator ALLOTT. Well, I will ask the Department of the Interior that question. Mr. DAVY. I would like to say, sir, that they do have control as a signatory to the contract; there is a division of work or labor, as you might say, which gives the Department of Interior a very substan- tive roll in this project. PAGENO="0075" FEDERAL OIL SHALE PROGRAM 71 We feel that the Government must have, on its own, not through someone they contract with, the ability to receive and then analyze the data. So I think the answer to your question, sir, is, Yes, the Department of Interior has a role wherein they will provide the reser- voir. evaluation and provide the expertise, as it were, with regard to the oil and gas business and we will try to provide the expertise as far as the nuclear explosive is concerned. Senator Moss~ I wanted to ask one question about the probability of radioactive contamination of the oil that is ultimately extracted in this in situ process. Mr. KELLY. Having never actually done the experiment, it is hard to be very definite about this. Our theoretical analysis and studies do not indicate any way that the radioactivity would become intermixed in the oil. As I indicated earlier, most of the radioactivity would be collected in the form of fused rock at the bottom of the chimney which would probably be located outside of the Kerogen bearing area. The small amount that is distributed within the chimney is in the voids and floats around and when one is burning the rock, and burning the carbon fractions in the rock the liquid vapor comes out and it is not clear that these airborne gases in the voids would mix with that oil at all. If they did, certainly there are ways that they could be sepa- rated and taken out. Senator Moss. Thank you, Mr. Kelly and Mr. Davy. We do appre- ciate your coming here and giving the Committee the benefit of your testimony. You see the Senator from Wyoming, the Senator from Colorado, and the Senator from Utah stayed right on to listen to all of this. (Following the hearing the following additional information was received from Mr. Kelly:) ATOMIC ENERGY CoMMISsIoN, Washington, D.C., March 1, 1067. Mr. JERRY VERKLER, $taff Director, Committee on Interior and Insular Affairs, U.s. ~Senate. Dn~&n Mn. VERKLER: During the hearings on February 21 and 22, 1967, regard- ing the Department of Interior's five-point oil shale development program, I agreed to submit further information in response to questions I was asked fol- lowing my prepared testimony. Senator Moss inquired as to whether the rock in which it is planned to con- duct the Gasbuggy project is more dense than the kind of rock found in the oil shale area. I answered that I thought they were roughly comparable, which is in fact correct. Generally, the bulk densities of the rock in both areas ranges from 2.2 to 2.4 grams per cubic centimeter. The bulk densities of some of the types of rock in which we have already conducted nuclear explosions are as fol- lows: Granite and Dolomite, 2.7; salt, 2.2; Tuff, 1.85; and Alluvium, 1.7. Also, the Committee may be interested in noting, as pointed out by an official of the U. S. Bureau of Mines, that although density is partly a function of porosity, it is also a function of the type of minerals or other substance composing the rock. Rather than density, it Is the porosity and the permeability that affect the flow and storage of fluids. The Pictured Cliffs sandstone (Gasbuggy) has an average permeability of 0.14 inillldarcy, and an average porosity of 11 percent. The Green River oil shale has a porosity and permeability so small that it cannot even be measured accurately. Senator Ailott raised the possibility that sodium in the groundwater in the Piceance area might be more susceptible than ordinary water to the absorption of nuclear activity. Sodium in the water should not present a special problem PAGENO="0076" 72 FEDERAL OIL SHALE PROGRAM since in the oil shale application it is our intent to design the experiment (Project Bronco) so as to minimize the probability of getting radioactivity into the overlying aquifers. It will be necessary, of course, to determine the competency of the rock between the shot point and the aquifer, and to understand the local hydrology. Our only similar experience was in our Gnome experiment in Decem- ber, 1961. Gnome was a 3-kiloton nuclear explosive detonated in a salt forma- tion 1,200 feet beneath the earth's surface, about 25 miles southeast of Carlsbad, New Mexico. The groundwater above the salt formation was high in salt con- tent, but no radioactivity was detected in the groundwater following the shot (ether from neutron activation or leakage from the cavity) because of the sur- rounding competent medium. With regard to water contamination, it is perhaps useful to note the Atomic Energy Commission's experience with groundwater at our Nevada Test Site (NTS) where hundreds of underground nuclear explosions have been detonated. The NTS groundwater provides the water supply for approximately 7,000 AEC and contractor personnel who daily live and/or work at the Site. Water use includes drinking, cooking, washing, and all normal pursuits for which water is necessary. Radiation levels of the water are low enough so that contamination is not a problem. Finally, with regard to another question of Senator Allott as to the extent the Department of Interior controls the non-nuclear portion of the Gasbuggy project, I am enclosing a copy of a letter to the AEC dated December 1, 1966 from the Sec- retary of the Interior. Thank you for the opportunity of providing this further informaiton for the record. Sincerely, RICHARD HAMIIURGER, Joux S. KELLY, Director, Division of Peaceful Nuclear Ewplosives. [Enclosure] DEPARTMENT OF THE INTERIOR, Washington, D.C., December 1, 1966. Dr. GLENN T. SEABORG, Chairman, U~. Atomic Energy Commission, Washington, D.C. DEAR Dn, Gr~ENN SEABORG: Field work will begin soon on Project Gasbuggy, a joint Government-industry experiment to determine the feasibility of using nuclear explosives to stimulate production of natural gas from a reservoir of low productivity in the San Juan Basin, which has been approved by the Con- gress. Therefore, it is appropriate to clearly define the roles of the Department of the Interior in relationship to the Atomic Energy Commission. As you know, there has been an active cooperative effort over a period of many years between the Atomic Energy Commission and agencies of the De- partment of the Interior, especially the Bureau of Mines and the Geological Survey. This cooperation has been especially active during the past few years in Plowshare applications research. Because of this, in July 1964 the Bureau of Mines was designated as the coordinatfng agency within the Department and was given the responsibility to conduct liaison with organizations outside the Department on all matters pertaining to Plowshare projects involving hydo- carbon production or storage. The proposed Gasbuggy experiment certainly will concern the Bureau of Mines, the Geological Survey, the Bureau of Land Man- ageinent, the Bureau of Indian Affairs, and the Office of the Solicitor. Perhaps other Departmental agencies also will be affected. We visualize the respective roles of the various Departmental agencies in the proposed experiment as follows: The Bureau of Mines will continue to coordinate work within the Depart- ment and to conduct liaison with agencies and organizations outside the Depart- ment. In addition, the Bureau's technical personnel will participate actively in pre-shot and post-shot natural gas reservoir evaluations. The Geological Survey will continue to provide geologic and ground-water hydrologic services and, with the Bureau of Land Management, assist in matters pertaining to use of Federal lands for the experiment I he Office of the Sohci I, PAGENO="0077" FEDERAL OIL SHALE PROGRAM 73 tor and other agencies will provide such review and assistance as may be neces- sary. It has been a pleasure to work actively with the Atomic Energy Commission and its contractors, such as Lawrence Radiation Laboratory, on Plowshare re- search and we are looking forward to continuation and intensification of that cooperation. We hope that you concur with the areas of responsibility sug- gested herein and shall be pleased to receive your comments. Sincerely yours, STEWAnT L. IJDALL, Secretary of the Interior. We will recess the hearing now and it will be resumed at 10 o'clock tomorrow morning. (Whereupon, at 12:40 p.m., the committee was adjourned, to recon- vene at 1() a.m., February 22, 1967.) PAGENO="0078" PAGENO="0079" FEDERAL OIL SHALE PROGRAM WEDNESDAY, FEBRUARY 22, 1967 U.S. SENATE, COMMITTEE ON INTERIOR AND INSULAR An~AIRs, TVa$Mngton, D.C. The committee met, pursuant to recess, at 10:03 o'clock a.m., in room 3110, New Senate Office Building, Senator Frank E. Moss, presiding. Present: Senators Jackson, Moss, Burdick, Allott, Jordan of Idaho, and Hansen. Also present: Jerry T. Verkler, staff director; Stewart French, chief counsel; James H. Gamble, professional staff member, and Darryl A. Hart, assistant minority counsel. Senator Moss. The committee will come to order. We will continue with our hearing on the proposal of `the Secretary of the Interior for the development of our oil shale resources. ~0ur first witness this morning is Joseph L. Fischer, chairman of the Oil Shale Advisory Board to the Secretary of the Interior and presi- dent of Resources for the Future. We are pleased to have you with us, Mr. Fisher, and you may go right ahead, sir. STATEMENT OF JOSEPH L FISHER, CHAIRMAN, OIL SHALE AD- VISORY BOARD TO THE SECRETARY OF THE INTERIOR~ AND PRESIDENT OF RESOURCES FOR THE FUTURE, INC. Mr. FISHER. Thank you very much, Mr. Senator. I am very pleased to have this chance to present my views on certain aspects of oil shale development policies, particularly the recent five. point program set forth by the Secretary of the Interior. I served as chairman of his Oil Shale Advisory Board, which made an interim report to the Secretary in February, 2 years ago. I must add, Mr. Chairman, that since that time I have followed oil shale questions only in a general way and, therefore, I `am not up-to-date on the very latest technological, legal, and other developments. I did notice that in a recent issue of Oil & Gas Journal, after noting that our Oil Shale Board had not helped very much, it did say this: "Udall ended up adopting something like the middle ground espoused by the Commission Chairman." I think that is an accurate statement. Although certain differences among the Board members were clearly revealed in the report, our Oil Shale Advisory Board did find good consensus on a number of important matters including these: Careful protection of land, water, wildlife, and scenic resources in the oil shale 75 PAGENO="0080" 76 FEDERAL OIL SHALE PROGRAM country; prevention of speculation and windfall profits from commer- cial development of the resource; encouragement of competition in the development of oil shale and associated minerals; and assurance that Government, at appropriate levels, would share properly in any reve- nues that resulted. I continue to believe that these, along with the development of the oil shale for future use of the American people, are the essence of the public interest in the resource. Therefore, I was pleased to note that the Secretary of the Interior reiterated these points in his release of January 27, this year, announcing the five~point program. The difficult and undoubtedly the most controversial part of the Secretary's program, I believe, is his third point dealing with con- tracts and lease arrangements for research and development and for subsequent commercial-scale development of oil shale. I want to spend my few minutes talking about this third point. This is the point that Senator Allott went so quickly to in the hearings yesterday as the most difficult part. This was also the matter over which the Oil Shale Advisory l3oard split and on which its several members expressed their individual opin- ions in the interim report issued 9 years ago. Generally speaking, the Board members were arrayed across a spectrum from those who wished to get on rapidly with commercial development of the industry to those who wished to postpone that until much more could be learned through research and development activities rather closely supervised by the Federal Government. My own position has been characterized as being somewhere near the middle and I think this is a reasonably accurate statement. Throughout I have thought that we should move toward an active development of the oil shale industry, with careful safeguards for con- servation and other elements of the public interest, so that this great resource could make its contribution to the American economy and the well-being of all Americans. I still envisage two stages: first, a period of imaginative and intensive research and pilot plant experi- mentation in the mining, handling, and retorting of the shale; and second, a controlled entry into commercial scale development of the industry under private auspices. This seems to be rather closely in line with what the Secretary has now proposed in his third point. The first research and development phase can be undertaken through contractual arrangements between the Government and private com- panies or it might be done by granting the private companies permits or research and development leases on small tracts of public land for limited periods of time for specific research and development work, and certain types of research might be done advantageously by the Government or jointly by Government and private companies. There should be, of course, performance requirements and, even in the small scale research and development phase, careful protection from the conservation and local community viewpoints. The primary object this research and development phase should be to open up the possibilities for development. Underground in situ techniques should be given special attention because of the inherent advantages of doing the crushing and retorting underground without disturbing the topography. Use of nuclear explosions to fracture the rock under- PAGENO="0081" FEDERAL OIL SHALE PROGRAM 77 ground and perhaps even provide the heat for extracting the liquid kerogen is one possibility that ought to be explored. The prospects of mining and utilizing the aluminum-bearing dawsonite, which is associated with kerogen shale, should also be probed thoroughly. The second phase-still dealing with point No. 3 of the five-point program-would be the firming up and would follow the research and development phase. This would involve the leasing of tracts of oil shale land of adequate size to support commercial size opera- tions, still with greatest care taken to preserve the various elements of the public interest which I discussed earlier. In fact, the studies relating to water supply, disposal of over- burden, effects of mining operations upon wildlife, scenery, and wilderness, community problems of all sorts, and other matters should be analyzed well ahead of the beginning of commercial development. Also commercial development should be approached in such a way that no competent enterprise would be excluded from trying to obtain a lease and get into the business. There would be an advantage for those companies which already had undertaken research and develop- ment activities; they would have the experience on which the Govern- ment, to a considerable, extent, would have to rely before actually leasing any of the public lands. In my statement in the Interim Report of the Oil Shale Advisory Board I went further than this and said that some advantage might be given to companies under- taking research and d~evelopment in the ultimate leasing of commer- cial-size tracts so as to encourage competent firms to come forward and do the necessary and antecedent research and development. One way of achieving this would be to announce well ahead of time that the Government would expect to offer for lease bids a few commercial- size tracts as soon as the research and development phase indicated that this second step would be warranted, and that it would limit the first round of bids to companies that had actually undertaken signifi- cant research and development work. This is an attempt to address my remarks to what I think to be the vital point raised by Senator Allott and characterized by the Secretary as the ripening of research and development into commercial scale activity. I think this is at the very heart and center of the problem we face. Well ahead of the second phase of commercial-size leasing the Gov- ernment should make clear the conditions that would be attached to the leases. The Government should also be in good communication with those industrial firms, whether from the oil industry or some other industry, that are interested. In particular, the conservation requirements should be made explicit as early as possible. The royal- ties that would be collected by the Government on each barrel of oil produced obviously would be a matter of great importance, as would the level of taxation that would bear on the producers. Precedent exists on these points for both onshore and offshore oil leases on public lands, and in the matter of depletion allowances for tax pur- poses. It is not entirely clear, to me anyway, at what point in the mining-processing continuum the value of the product for depletion allowance purposes would be calculated nor what its level would be. This should be straightened out well ahead of time. Regarding the other points in the Secretary's program, I have little to add. Obviously the sooner the clouded claims difficulties are 76-82i-67~----6 PAGENO="0082" 78 FEDERAL OIL SHALE PflOGRAM settled, the better. The "blocking-up program" makes good sense to me. Clearly the several bureaus in the Department of the Interior that would be concerned will have to have the funds and capacity to develop the basic information that will be required and to work up the conservation and other requirements that would go along with any lease program. In conclusion, I believe that the five-point program is a good one at this stage. It is recognized, of course, that a careful mixture of clarity and firmness on one hand with flexibility and reasonableness on the other, will be necessary. The two-phase approach, first of research and development and then later of commercial scale develop- ment, seems best to me in terms of conservation of land and water resources in the oil shale region, in terms of assuring the public ade- quate returns on its property, and in terms of making it possible for private enterprise to get on with developing the resource in an orderly way. Thank you. Senator Moss. Thank you, Mr. Fisher. This discussion of the two~ phase development is, of course, the heart of this present inquiry, I believe. At least it is one of the sticky points about which we must make some decisions. Mr. FISHER. Yes, sir. Senator Moss. Your suggestion that perhaps we should have pri- vate companies take a lease on a small section~ and do the research and development work and then be eligible to bid on a larger com- mercial block of land sounds reasonable. I am wondering how the eligibility might be made sufficient by elastic. Suppose a private company, in doing its research and development work spent $10 million, another one did research and development work, and only spent $1 million. Do they have a varying eligibility then in bidding for the largei~ block later ~ Mr. FISHER. Well, this would be a hard administrative determina- tion and I do not have an answer to it. It is a problem. I would think there would have to be some cutoff point expressed in terms of research and development money spent or results achieved and any company that had done that or more would be given a special leg-up on the commercial leasing. Senator Moss. In any event, the point is an intriguing one. I thmk, obviously, the way to induce private industry investment and know-how is to give them a degree eligibility so that there is a possibility of recovery of investment once the process has been per- fected. How to get to it is the thing that I am still turning over in my mind. Mr. FISHER. Yes. I do not see it clearly in administrative terms either. I could imagine a minimum figure in terms of research and development money spent. It is conceivable, I suppose, that any company might be allowed to engage in the lease bidding but a per- centage preference would be given to those who had done a certain amount of research and development and, I think, in the end it would have just to be an administrative determination of what that mini- mum amount would be which would qualify a company for what I called a moment ago the leg up advantage PAGENO="0083" FEDERAL OIL SHALE PROGRAM 79 Senator Moss Do you envisage the possibility that there might be a company now or in the near future which felt that it had done research and development work already and was not prepared to move right into phase 2 and, therefore, should they be able to proceed into phase 2? Mr. FISHER. I am not knowledgeable sufficiently of what the differ- ent companies may have been doing in the last couple of years, particularly, really to answer that question. I think time would have to pass in any event so that the Department could work out and be reasonably sure of the kind of conservation and other conditions it would want to specify in any leasing In the interim, even those companies that have made what they would regard as good progress in research and development might want to continue. Senator Moss. I take it, from your testimony, that although you caution that all safeguards must be developed on conservation and these other matters, that nevertheless you think the time is here to be pushing ahead with the development of the processes for the ex- traction of oil from oil shale? Mr. FISHER. Yes. I think the five-point program is a good one and will move us forward toward a sensible development of what poten- tially is just a tremendous resource for the American people. And I would, myself, wish us to be somewhat more positive, even aggressive, than we have been in the past, but never forgetting the safeguards that will have to b~ brought forward and made a part of the development. Senator Moss. Thank you. I do appreciate your testimony and we all appreciate your fine service as Chairman of the Oil Shale Advisory Board. It is valuable, indeed, to have your counsel before this com- mittee. Some of the other Senators may have some questions. Senator Allott? Senator ALLOTT. Yes, thank you. Mr. Fisher, I would like to ask you about your thoughts on this: The Secretary made five points in his announcement, the first being the action to clear title, the second the blocking-up program, the third, the provisional development of leases, the fourth, in situ retorting, and the fifth, governmental research. Now, looking forward to the future as development of oil shale becomes a viable part of our economy, can you see, even if we proceed at a rapid pace, any possi- bility of the creation of a going oil shale industry in the next year? Mr. FIsHER, Well, no, I cannot really see it within the next year. Senator ALL0TT. The point I want to make is, I think that at the very, very best we are looking ahead 3 to 5 years under the most ab- solute favorable circumstances, are we not? Mr. FIsHER. I would think so; yes. Senator ALLOTT. So that we should not take anything in your state- ment to mean that there should be any letdown or slowing down proc- ess in going into these five points that the Secretary has suggested here, because, even if we go into these five points full blast, we are still several years away from a viable industry. Mr. FIsHER. That is my belief; yes. Senator ALLOTT. I wanted to be sure that it was, because I think this is true. PAGENO="0084" 80 FEDERAL OIL SHALE PROGRAM Now, I do agree with you that no competent enterprise, as you say on page 3, should be excluded from trying to obtain a lease and get into the business. Then you qualify that or make a suggestion as to those who are undertaking research and development. I would just suggest there that the amount of money invested in such research and development might not necessarily by the sole criteria for preference. Mr. FISHER. There might be others; yes. Senator ALLOTT. There might be others. In other words, I think the experience and what they have been able to develop might be the real criteria rather than the amount of dollars that have been spent. The Government, for example, is notorious in spending lots of dollars and coming up with very little, as you know. What in your opinion, and I am exploring your ideas, would hap- pen to a company, for example, which did not do its experimental work on Government property but rather did its research and experi- mental work on its own property? Would it be given an equal op- portunity with the company or companies that had done their work on Government porperty or in conjunction with a Government con- tract for research? Mr. FIsHER. Well, we are probing the heart of the matter and these are just my reactions as you ask the question. Senator ALLOTT. Yes, I am just probing your mind to find out what you are thinking about. Mr. FISHER. Well, my own preference, as we are discussing it, would be not to penalize companies in any way that have made good research and development progress on their own properties, that this is as valid and as important as what might be done by another company on Government properties, and therefore, indeed, such work on the private land ought to be encouraged to the full. Senator ALLOTT, Then, in your thinking, in getting additional leases or developmental leases, they should roughly stand in the same situa- tion Mr. FISHER. Yes. Senator ALLQVr Dependent upon what they really have accom plished in their own field. Mr. FISHER. That is right. Senator ALI.~OTT. Would you be thinking somewhat in terms of a two-stage leasing program in which a preference would be given to those companies which have already developed, either on their own property or privately, methods of extraction and so forth, as compared to those who have done it on Government property and then perhaps in the second stage opening it up further to other companies which have not done this? Mr. FISHER. Yes. That expresses more clearly what I had in mind in my statement, when I said that the first round of bids for the first year or two, or something like that, the bidding would be limited to those companies that had done significant research and development work on their own property or on Government property, conc~ivab1y elsewhere in the world. But the point of this is to draw companies with good research and development capacity from whatever indus- try into the research and development phase. I think in order to do that, one has to bait the hook to some extent and give them at least some PAGENO="0085" FEDERAL OIL SHALE PROGRAM 81 reasonable advantage in the subsequent phases of development of in- dustry. Senator ALLorr. Well, I assumed this was perhaps an implication to be derived from your statement. I also assume, from your state- ment, that you would agree with me that Federally owned oil sl~ale is a resource that should not be opened up merely for speculation. Mr. FISHER. Absolutely. Senator ALLOTT. I read the papers from time to time and in them I see advertisements to participate in valuable Government oil and gas leases. You would not, I take it, favor a situation in which just leases could be taken and then interests in them advertised for resale in small blocks or something like that merely for speculation? You are thinking only in a developmental sense, are you not? Mr. FISHER. That is correct. Senator ALLOPT. Now, just one other point that I wou'd like to ex- plore briefly with you. There was an error made in the record yester- day by one of the witnesses, that a bill introduced by Congressman Aspinail sought to change the depletion allowance for oil shale, and you say it is not entirely clear at what point in the mining prbcesses continuum the value of the product for depletion allowances purposes would be calculated nor what its level would me. The last bill intro- duced by Congressman Aspinall and the last bill introduced by me S. 932 in the last session-I have not reintroduced it yet this year, I will- did not change the depletion allowance for shale. It was still left at 15 percent and I think the record ought to be made perfectly clear in view of the obvious indication of the testimony yesterday. The purpose of these bills is to move the application of the point of depletion from the raw shale as it comes out of the ground, and that is what the Federal statute provides now, over to the point of the first retorting. Of course, this is not a law yet but obviously the value of the raw oil shale ore is minimal and a depletion allowance applied there would be sort of inconsequential. It is not like sand or gravel which immediately upon extraction has a value by itself and when it is used that way, but rather applied to the first retorting. Is this in conformity with your thinking? Mr. FISHER. I have not myself gone deeply into this question. My understanding, too, is that at present the allowance is 15 percent on the-I guess the crushed shale-but before retorting. I think the only point I would like to make here is that in this interim period, you estimated at perhaps 3 to 5 years it would be highly desirable for this matter to be either left as it is or changed or made clear through the bill or in some other way so that the companies interested in major investments in the industry would know what they were dealing with by way of depletion allowance. Senator ALLOTT. Well, I agree with you, but I am sure you, with your last st atement, would also auree that there is a vast difference between the application of a depletion allowance at the time the shale comes out of the mine or is crushed and the time it goes through the first retortmg, and it mikes a completely different picture as fir as the creaton of a vv~ble oil shale industry is concerned Mr FISHER Probably more significant than the percentage Senator An r~orr Prob~ibly so PAGENO="0086" 82 FEDERAL OIL SHALE PROGRAM Mr. FISHER. And, if I may add this, if the in .situ process succeeds, just offhand it would seem to me that the percentage of depletion al- lowance would then have to be applied on the liquid product as it was pumped out of these chimneys to make this consistent with how this feature of the tax laws would apply to shale that was mined by more conve~ntional methoc~s and then shipped to a plant and retorted. How to make these consistent is another thing that I think ought to be straightened out ahead of the commercial phases of industrial devel- opment of the industry. Senator ALLOTT. Well, I do not think, personally, this constitutes any great problem. The real problem, I think, comes in its applica- tion. You do not have anything out of the ground in the in sitn proc- ess, assuming it works, until you pump something out, and then your depletion allowance would apply. But in the case of what so far has been the conventional methods of mining the shale and retorting, you do have a prbblem, and it makes a lot of difference. Thank you very much, Mr. Fisher. The CHAIRMAN (presiding). Mr. Fisher, I assume that you would agree ~that, of course, it is important that we try to find out before we get into an extensive leasing program what the costs are going to be in connection with the processing of the shale. It is rather difficult to make any policy decision unless you have that information. Mr. FISHER. Yes. The CHAIRMAN. Do you see at this time a need to change the provi- sions of the Mineral Leasing Act? Mr. FISHER. I have not really thought deeply about this, Sena- tor Jackson. It is another whole subject and I would be glad to think about it and write to you. The ChAIRMAN. It does go to the equities, of course. Mr. FISHER. Yes, it does. The CHAIR1~1AN. There is a great argument what the Government royalty should be, what the return should be to the Government. Mr. FISHER. Yes~ that is right. The CHAIRMAN. I think it is important that some thought be given to this problem, because sooner or later we will have to face up to it~ Mr. FISHER. Yes. I agree. In the Advisory Board Report we referred to this problem and made some few sentences about it, but we did not go deeply into it there either. We confined ourselves to questions that were more solely concerned with oil shale. I certainly agree that, from certain points of view, some provisions of the Mineral Leasing Act do not appear to be as relevant or useful today as they did several decades ago. The CHAIRMAN. That is especially true until we get some idea of the cost of recovering the oil from the shale. Mr. FISHER. Yes. The CHAIRMAN. And, of course, when the value of the byproducts involved in this undertaking are better known, we will be in a more knowledgable position to make an evaluation. I think it is important that there be as much competition as possible in this effort to come up with a most efficient, the most effective recovery process This is just commonsense, that you do not try to limit any one approach. You should bring in as much of a diversified approach as possible. PAGENO="0087" FEDERAL OIL SHALE PROGRAM 83 Mr. FIsHER. Yes. I certainly agree with that, and I think in what I call the first phase, the research and development phase, which would be a negotiated phase between the Government and companies with a willingness and capacity to do imaginative research and de- velopment, every effort should be made by the Government to stimu- late a variety of approaches and exploratory work, just as has been done, for example, by the Atomic Energy Commission over the years with private companies. The CHAIRMAN. Well, one of the best things we did in the atomic energy reactor program was to invite proposals from industry. In that case, with Government help and with various approaches being made, different types of reactors were developed. I think this has paid off handsomely to the American public. Mr. FISHER. We have the advantage of a very rich and diversified technology in this country and we ought to take full advantage of that by setting in motion a variety of approaches to this problem On your point about the costs, I think that is vital in the end, of course, before any investment decisions will be made I hope that in negotiating research and development activity with the companies the Government could encourage and even insist that they include not only the engineering, scientific, and technical work, but also as much as possible keep cost records on any pilot plant operations, and even provide them with some standard treatment for overhead and items of that sort. Then, at the end of what I would hope would be a rich and diversified research and development phase, it would be possible, within some limits of probability, to project from the pilot operations costs of commercial scale operations a basis by which you might at least begin to compare different techniques. The CHAIRMAN. I know very little about the technology or the state of the art of this business, but if one can draw from the ex- perience that we have had in other programs it would appear that while research and development prototype facilities will reveal cer- tain information, I think what you suggest makes a lot of sense. It is my impression that you probably will really not get a good cost picture until you have built and operated a large-scale facility. There is a vast difference between trying to extrapolate, no matter how de- tailed the data, from a prototype facility and comparing it with a full scale operation. Mr. FISHER. That is right. The CHAIRMAN. We learned in the nuclear power program that the prototype reactor will reveal certain technical shortcomings but when you build a large-scale facility, you really begin to get the facts that you need to have as far as costs are concerned. That is something I do not think one can avoid doing. Would you agree ~ Mr. FISHER. Oh, yes. That certainly is true, although to make the decision on the first full-scale operation, you have to project on the basis of technical and cost information on a pilot scale, even though you know you may go wrong. The CHAIRMAN. I do not oppose prototypes. Do not misunder- stand me. I was adding that caveat, We had the same thing in the saline water program. I think there is a danger sometimes that one jumps to conclusions, beacuse of a prototype operation, that the costs are going to be such and such. That was my point of observation. PAGENO="0088" 84 FEDERAL OIL SHALE PROGRAM Senator ALLOTT. Would the chairman yield on that? The CHAIRMAN. Yes. Senator ALLOTT. I would like to agree with the chairman on this, because I think it would be dangerous, and in fact in this field I think we have some illustration of it. It would be dangerous to try to ex- trapolate very far from a pilot plant to a full-size commercial plant and base your decisions as to what you are going to do, how you are going to treat these people, and what leases you are going to give, on that basis, I think it would be a very dangerous thing to do. I agree completely. The CHAIRMAN. Senator Jordan? Senator JORDAN. Thank you, Mr. Chairman. Mr. Fisher, I am interested in one sentence in your statement, where you are speaking of certain criteria to observe in the second phase, commercial leasing, and you say, "In particular, the conservation re- quirement should be made explicit as early as possible." My question to you is: Has Resources for the Future arrived at any conclusions as to what these conservation requirements might be? Mr. FISHER. Senator, we have not conducted any research on this question in oil shale. We have, I think, a couple of studies going forward on the similar question in the coal industry. One of these is a grant from us to the University of West Virginia, and there is one other. There might be some transfer of findings, but essentially it is a problem of how to deal with the overburden that is removed and any alteration of the landscape and the different ways of doing it and different levels of treatment. Senator JORDAN. Problems that might arise out of water pollution or air pollution. Mr. FISHER. That is right. Senator JORDAN. And you mention the prospect of mining and utiliz- ing the aluminum-bearing dawsonite. You want to explore fully the possibility of recovery of other minerals in the shale in addition to the oil? Mr. FISHER, Yes. Senator JORDAN. This, I assume, will be one of your- Mr. FIShER. Yes. I would think in any pattern of research and development work that might take place in the first phase over the next few years, the Government would do well to make certain that the other values, conservation values and other mineral values, also be investigated. That this be part of the full package. Senator JORDAN. Thank you. The CHAIRMAN. Senator Hansen? Senator HANSEN. I appreciated your very excellent statement. I would like to ask, in connection with the question just posed by Senator Jordan, would you agree that the conservation requirements which may be indicated may have to reflect the different processes that likely could be developed in order to exploit fully these resources we find underground? If we are talking about in $?~tu recovery of oil, I should suspect that we might anticipate little change in the character of the land generally. However, if we talking about, and if on the basis of pilot plant operation it appears as though the removal of the over- burden will be indicated and that we will actually have to take out PAGENO="0089" FEDERAL OIL SHALE PROGRAM of place the oil shale and crush it, and that sort of thing, then I think we have an entirely different situation confronting us. And your thought, as I understand you, would be that, consistent with whatever sort of treatment is indicated, you would hope to apply realistically some good conservation practices so as to preserve, as best they can be, those values that we all appreciate as being important? Mr. FISHER. Yes. I agree completely with that. Depending upon the process that might be used, the conservation problems are different. Senator HANSEN. Yes. Mr. FISHER. And this would have to be thought through in this way. It was brought out yesterday morning that, if it is done in situ, the problem then is not disturbance to the topography but the problem then may become watching very carefully where radioactive sub- stances go. Senator HANSEN. Yes. Mr. FISHER. Ami it would vary with the process, yes. Senator HANSEN. I would I ike 1 o commend you. i)r. Fhther, on pro- viding us with an excellent le~hui lye hi~tor~ of the jmport~m rOle played by the Oil Shale Advisor Board~ aml thank ~ eu icr placing the interim report to the Secretary of February it~G.~ in Pi0PeI~ pci- spective for us. I have no further quest ions The CHAIRMAN. I, too, want to compliment you, Mr. Fisher. I think you have made a very helpful contribution here to this effort that we are trying to ~make of getting points of view and getting a better understanding of some of the problems that we face in this all important area. I want to thank you and compliment you. Mr. FISHER. Thank you very much. The CHAIRMAN. Our next witness was to be Mr. Richard Eckles, coordinator of natural resources, State of Colorado. His statement will be presented by Mr. Russell Cameron of Denver. Senator ALLOTT. Mr. Chairman, if I may, I would like to point out that Mr. Cameron is a member of the governor's oil shale advisory board in Colorado. He is an outstanding engineer and has had great experience in government. In the area which we have under explora- tion here I think he will be of great help to the committee. The CHAIRMAN. We are delighted to have you, Mr. Cameron, and now you may proceed in your own way. STATE1VIENT OP RICHARD ECKLES, COORDINATOR OP NATURAL RESOURCES, STATE OP COLORADO, AS PRESENTED BY RUSSELL CAMERON, OP DENVER Mr. CAMERON. I might mention in preface that my company has just completed the engineering for a large prototype oil shale retort for construction in Brazil, and at the conclusion of Mr. Eckles' state- ment which I will read, I would be glad to answer any questions that the committee might have on technology and economics of oil shale which is the field in which I am most knowledgeable-or at least that some feel I am most knowledgeable. On behalf of the deeply interested and concerned citizens of the State of Colorado, Governor John A. Love wishes to express appre- 85 PAGENO="0090" 86 FEDERAL OIL SHALE PROGRAM ciation for the opportunity, through me, to comment on the five-point oil shale development program announced by Secretary of the In- terior Stewart L. Udall on January 27, 1967. We compliment Secretary Udall on his announcement and regard it as a beginning step favorable to the development of our great oil shale reserves. We also are particularly pleased that it contains strong recognition of two facts: (1) that mounting energy demands in the United States make it imperative that sizable amounts of oil from oil shale begin to flow in the 1970's; and (2) that immediate action on many fronts is essential to clear away obstacles to oil shale development. We are also pleased and proud that so much of the five-point pro- gram is consistent with the recommendations made by Colorado in early 1964 in response to the Secretary's request for suggestions look- ing toward the formulation of a program. For your more leisurely perusal we attach to this statement copies of Governor Love's 1964 letter to the Secretary containing those recommendations. Although 3 years have passed-and been lost-we are satisfied that the positions taken by us in 1964 are still sound. We are anxious, however, to make a refined and updated set of recommendations for your consideration promptly after Secretary Udall does what he cer- tainly must do soon; that is, issue detailed descriptions of how each of the five points of the program will be implemented and carried out. During the last 3 years we in Colorado-and interested industrial concerns-have not simply been champing at the bit but have been doing all within our power to lay the groundwork for a sizable oil shale industry. Tens of millions of dollars have been spent in private research. I might add parenthetically here that it is our estimate that since the Government ceased its activity at Rifle, private industry has spent about $50 million in oil shale research. This would be about the last decade. The applicants have done all in their power to break the legal log jam affecting oil shale mining claim patent applications. Preliminary attention has been given to the complex problems of financing the schools, roads, and community services which inevitably must be provided for what will be mushrooming oil shale communi- ties. Much thought has been given to zoning and city planning so that oil shale communities will be model cities and not cancerous blights. This has been largely done by the local communities. Both Garfield County and Rio Blanco County have set up zoning regulations, em- ployed consulting firms, and are taking many forward steps in this direction. Colorado has taken a position of strong leadership in the fields of natural resource conservation and the abatement an4 prevention of air and water pollution. There are problems in all of these areas of great importance to the proper development of oil shale but there is no need to postpone progress until the development by the Department of the Interior of a comprehensive national policy. We are convinced that these matters-as matters of great local concern-can be and should be handled at the local level where the problems are and where the people directly affected reside. We intend to do all that is needful in these matters and are satisfied of our ability to do so. PAGENO="0091" FEDERAL OIL SHALE PflOGRAM 87 Mr. Eckles asked me. to point out in particular that Federal authori- ties who are considering these same problems should get in contact with our local agencies in Colorado, which already have programs in effect for this and have made great progress in defining the standards necessary for the proper control of stream and air pollution and land- scape restoration. Some problems, however, cannot be ~lved by thinking, planning, and legislation alone. Some problems require immediate and costly implementation now if oil shale development is to occur a decade from now. As a personal aside, I was quite surprised at Secretary TJdalI's comment that we will not need oil from supplemental sources in this century. This does not coincide with my own studies nor with the studies of many other major oil companies with which I am familiar. A prime example of this kind of problem is the absolute necessity for the immediate development of the water essential not only for in- dustrial requirements but for domestic use in the supporting communi- ties. Water development in our semiarid West is possible-and will be done-but it will require huge sums of money and substantial lead- time for the construction of the reservoirs and diversion works which will inevitably be required. Again I would like to make a reference to Secretary TJdall's testi- mony in which he mentions, I believe, 20,000 acre-feet per year of water required for a ~ilhion-barrel-a-day industry. I know he defined this as only process needs. But a study which our company made for the State of Colorado in 1959 indicated about 10 times this amount of water would be required for all of the community and industrial needs of a million-barrel-a-day oil shale industry. The CHAI~LiMAN. You say 10 times? Mr. CAMERON. Yes, sir. I am sure Secretary Udall's reference was correct to certain process needs, but obviously we have to provide water for the population, for auxiliary industry, for many other needs. The CHAIRMAN. You are bringing in the indirect requirements? Mr. CAMERON. I am including all of those; yes, sir. The necessary time to solve this kind of problem is irretrievably escaping us day by day. The necessary capital cannot and will not be available unless and until certainty exists that an oil shale industry will be permitted-not just possible, not just encouraged, but per- mitted. This certainty can only exist if there is prompt and full implemen- tation of a strong and purposeful intent on the part of the Department of the Interior and the administration to remove existing impediments and pursue a program which both protects the public interest and offers reasonable incentives to private capital to participate in this essential venture. As stated earlier, the five point program announced by Secretary Udall is a long step in the right direction. May we ask your invalu- able assistance in guiding the remaining steps along a path which will accomplish the goal we all agree must be reached. We in Colorado pledged to continue our best efforts in this great endeavor. Thank you. The CHAIRMAN. Thank you, Mr. Cameron, for the statement. We are glad to have it and the letter will be included at the conclusion of your formal remarks, PAGENO="0092" 88 FEDERAl OIL SHALE PROGRAM Senator Ailott? Senator ALLOTT. Mr. Cameron, just a few questions. I assume from this statement and the letter from the Governor re- ferred to, that in the opinion of the State of Colorado, a lot depends upon the spelling out, the detailing of the program which the Secretary announced recently, and that in order to make real progress, we have got to find out what the program is going to be. In other words, if we are going ahead, we have got to have a more distinct spelling out of where we are going. Mr. CAMERON. Yes, sir. Senator ALLOTT. I would like to ask you a question or two. I think the implication of this is widespread. My recollection is that Brazil suffers a balance-of-payments deficit of some $300 or $350 million a year on account of oil imports alone. Is this correct? Mr. CAMERON. Yes, sir. And it is rising. The deficit is. Senator ALL0TT. Of course, we are all aware of the great inflationary problems in Brazil and the headaches it has caused not only them, but us in trying to develop Latin America. So the develoment of a vi- able oil shale industry in Brazil could, in itself, have a far-reaching effect or a considerable effect upon the balance-of-payments problem of Brazil Mr. CAMERON. Yes, sir. That is correct. The large oil shale re- ~erve~ which we hope can be convertible to oil reserves in Brazil could completely satisfy their needs for oil for centuries to come Senator ALLOTT In general, are those reserves comparable in rich- ness to the ones in the Colorado-Utah-Wyoming area? Mr. CAMERON. In general, they are not as rich in many areas. How- ever, it appears from our present studies that they are susceptible to mining methods which make them quite economical to mine and retort. Senator ALLOTT. Mr. Cameron. you have been carrying on work of this nature in Brazil for 10 years? Mr. CAMERON. Yes; more than 10 years. Senator ALLOTT. From my own knowledge. I know that you have been carrying it on for 10 years, but your work has not been confined to Brazil alone, has it? Mr. CAMERON. NO, sir. Senator ALLOTT. In this field. Mr. CAMERON. Our company was organized about 12 years a~o and T had previously been associated with the Bureau of Mines Rifle op- eration as wefl as had many others on our staff. We began a research program in Brazil, conducted pilot plant work there, and certainly, with our assistance to the Brazilians, the Brazilians have developed what appears to be a feasible process for their shale. We have also (Tone comparable work in the United States. Senator ALLOTT. Is this plant now under construction in Brazil what you would call a production plant? Mr. CAMERON. It is a large prototype plant. Senator ALLOTT. A large prototype? Mr. CAMERON. It will pr~ess about 9.000 tons a day, this one unit. It may very well be a size that in batteries can become a commercial plant, say a dozen of these retorts. It may be that we will find that PAGENO="0093" FEDERAL OIL SHALE PROGRAM 89 it is possible to scale up this size to something larger. This will depend upon our experience in operating it. Senator ALLOTT. Now, one* of the problems in this whole field has been the actual extraction of the shale and you have done some work in a type of extraction of shale itself, I understand, that is different from this-different from anything that has been mentioned here. Could you describe it briefly? Mr. CAMERON. Yes. We have been fascinated by the possibilities that the nahcolite and dawsonite in these deep oil shales might give us a leg up on getting shale oil produced ecohomically, in getting an industry started on an economic basis. We have not been able to conceive of how dawsonite and nahcolite could be extracted by any in $ztu method which leads us to the necessity for considering mining of these deep oil shales as a means of recovering these valuable minerals. When you direct your attention to mining these oil shales, the first thing, of course, you have to consider is the cost and the economics of the procedure. You also have to give consideration to the recovery of all of the valuable minerals that are there and all of the shale that is there, as the Secretary and others have pointed out. So we have given some consideration to a block caving concept of mining whereby we would, say, sink a shaft to the level of one of these richer bands or richer layers of oil shale containing nahcolite and dawsonite. This horizontal layer would be mined in such a way that the openings that were left would offer access to a 1,000- or 1,500-foot layer of shale above this zone for a block caving operation. Now, I might explain this block caving concept briefly. It merely is one in which you open a room large enough that you begin to cave a ceiling-cave the material above you-so that if you have a means, an entry whereby you can continue to withdraw this rock that is caving above you, and remove it to the surface for processing, this procedure can continue. The more rock you withdraw that is caved from the roof, the more the roof caves and ultimately this 1,200-foot section, let us say, that might be above this zone would be caved into the openings where it could be removed and processed. Now the disposal of spent shale-disposal of the waste from this operation-would he of some concern. Our feeling is that you could put the waste back on the top of your caved area and that, as the oil shale was removed, you would put the spent shale back into the hole created by removing the 1,200 feet or so of shale. Now, if you were in a 2,000-foot-thick section, and, let us say that there were 500 or 600 feet of oil shale below you, you would go down and mine out again another opening there and cave this material down into that opening and remove it. So you could remove all of the 2,000 feet of oil shale, process it, and put the spent shale back in the hole. The mining of this rich nahcolite-dawsonite area might provide the revenue for the cost of developing the system. This is a system that is practiced~ at Climax, as you well know, Senator, which is the largest underground mining operation in North America and uses this block caving system quite~ economically and quite success- fully. Senator ALLOTT. Thank you very much, Mr. Cameron. I brought out this point because I think it merits being a part of the record. My PAGENO="0094" 90 PEDERAL OIL SHALE PROGRAM purpose is to show the type of thinking and investigation and re- search and engineering that is going into the mining and development of oil shale. There is just one other thing. The Secretary in his statement indi- cated that we had enough liquid petroleum reserves in this country to go on through the end of this century and I think he said at about the same cost. I placed in the record, and I have it in my hands here, the hearings of May 12, 1965, in which I inserted a statement and a record which shows that in this country our demand rate had in- creased in just a few years 47 percent more than ~ur reserves in- creased. It is a fact that from the standpoint of national interest, the demand is increasing at a fa~r greater rate than the reserves are increasing, and the costs of the new reserves being brought in are far more expensive than they have been in the past. Is that not so? Mr. CAMERON. I believe that is so; yes, sir. Senator ALL0Tr. Thank you very much. The CHAIRMAN. Senator Moss? Senator Moss. I am very interested in your personal testimony as well as the statement you read for us, Mr. Cameron. In this descrip- tion of mining oil shale, which sounds very intriguing, I wonder if you have also done any experimental work on this in situ operation we have been referring to off and on here-attempting to extract the kerogen oil without taking the rock out? Mr. CAMERON. Yes, sir; we have. We have studied in situ retort- ing for many years and my company is one of the participants among 25 in this cooperative effort between industry and Government to conduct a test using nuclear means of breaking up the shale. Senator Moss. Has there been any research and development on that done in Brazil where you have been working recently? Mr. CAMERON. No research and development recently really. We have made studies of the possibilities of it and did not come up with any very good possibilities for in situ operation. I might say that I am somewhat skeptical of the possibility of developing an acceptable in situ method. When I say I am skeptical, this does not mean that I do not feel that a great amount of research should not be aimed at in situ methods, because it has obvious possibilities for being more advantageous than mining and retort. In my opinion the experience to date does not give us too much encouragement. One of the reasons for this definition-of wondering whether there is an acceptable meth- od-would be the percentage of recovery of oil that might be obtained from an in situ method. I think that if we look at the recovery of oil from petroleum reservoirs and even with the best of methods in many reservoirs we cannot get more than 50 percent of the oil. In some reservoirs we can get more. But in many reservoirs we cannot get nearly half of the reserve that is there, and oil shale, as we see it now, looks even more difficult and possibly quite expensive. Senator Moss. What is your percentage of recovery on the removal of the rock in the crushing and retorting process? Mr. CAMERON. I think that that method probably will ultimately re- move a very high percentage. B~ing from Utah, you well know that out at the Utah copper pit, in)the early stages this development was mined by one method in wliith high grade ores were recovered. As PAGENO="0095" FEDERAL OIL SHALE PROGRAM ~ time went on, by converting to a different method, almost all of the values that are there are being recovered. And I look at the develop- ment of oil shale much on the same basis. We would start mining high grade sections, such as the nahcolite-dawsonite that I mentioned, then go to some other method for the ultimate recovery of the re- maining values. I look for a very high recovery there. I do not think that the problem, and it is a problem, created by the necessity to dispose of waste is an insurmountable one. I can assure you that in- dustry as well as the State of Colorado, and I am sure the State of Utah as well, is giving a lot of thought to doing this on an acceptable basis. Senator Moss. Thank you. Very interesting testimony. I appreci- ate it. The CHAIRMAN. Senator Jordan? Senator JORDAN. Mr. Cameron, I find your testimony very interest- ing and informative. I am interested in your estimate of the water re- quirements for recovery of oil from shale that the Secretary has, as you point out, indicated yesterday to be some 20,000 acre-feet per million barrels production a day. You say it will take probably 10 times that much water. That will be 200,000 acre-feet per million barrels production. At what level do you expect this resource can be developed in, we will say in numbers that we can understand, and in million barrels per day, when we get into full operation? Mr. CAMERON. This~ is a question which has several bounds on it. For one thing, a million barrels a day is not going to run into any market limitations in my opinion, since a million barrels a day is now less than 10 percent of our current demands. There certainly appears to be enough oil shale to produce several million barrels of oil a day and several million barrels of oil a day certainly may be needed from oil shale by the end of this century. So I have to give you sort of an "iffy" answer. I would say it is in the several million barrels a day as a possibility, and water requirements will not necessarily be in multiples a million-barrel-a-day industry. I can see the possibilities here since my figure of, say, 200,000 acre-feet p~r year includes the requirements for the people who serve this industry, that as time goes on the technology will become more efficient and there will be fewer people required per barrel produced. We might be able to operate 30 or 40 years from now an industry with the same number of people for 5 million barrels a day as presently for a million barrels. Senator JORDAN. Water needs would not necessarily increase in the same ratio for additional production? Mr. CAMERON. Correct; but it is a significant demand for water. Senator JORDAN. And conceivably if the water supply cannot be found, it might operate as a limitation on the amount of oil that could be recovered? Mr. CAMERON. Certainly it could, and I think in order to develop an industry most economically, we would like to not be limited by water, at least in our initial stages. We would like to have ample water there. And that is the reason that I feel the States' determination that the development of water supplies for an oil shale industry should precede the development of that industry are such that we will have an ample water supply. PAGENO="0096" 92 FEDERAL OIL SHALE FItOGIIAM Senator JORDAN. Thank you. The CHAIRMAN. Senator Hansen? Senator HANSEN. I have been very interested in the testimony here this morning, Mr. Cameron. I am delighted that the Senator from Idaho went into this question of water. It is a concern that has been of real interest to me. I have oniy one further comment to make. It is that I hope your suggestion that the Federal authorities will go to the States to find out what has been done, what projections have been made in the way of conservation practices that could well be implemented, will be followed up. I think that, if the Federal Gov- ernment recognizes the good sense in taking this approach, it might be very worthwhile and undoubtedly a number of techniques that would be useful would be disclosed to the Federal Government that might be very helpful. I commend you for that observation. I have no further questions. The CHAIRMAN. Thank you very much. Thank you, Mr. Cameron. We appreciate having your statement. (The letter previously referred to follows:) STATE OF COLORADO, Denver, March, 27, 1964. The Honorable STEWART L. UDALL, Becretary of the Interior, Washington, D.C. MY DEAR Mn. SECRETARY: Your news release of November 5, 1963, invited suggestions looking toward formulation of a program for the orderly develop. ment of the federally-owned oil shale deposits in Colorado, Utah and Wyoming. it is my pleasure to respond to your invitation in behalf of the State of Colorado and its citizens. You have suggested that we consider carefully the relationship of oil shale, as an energy source, to coal, petroleum, natural gas, hydro-power, atomic energy and other sources of energy, both domestically and in relation to international affairs. To the best of our abilities we have done this and, in addition, have conducted a serious canvass of interested citizens and of industry over the last several months. Based upon our investigations we earnestly ask your con- sideration of the following: 1. The earliest possible development of our oil shale resource is essential to assuring a solid long-range supplement to our donlestic petroleum supply. Although we do not fear that our country is running out of oil or other energy sources, it is becoming increasingly apparent that the combined effect of all of the national and international factors affecting the supply of and the demand for energy may, in as short a term as ten years hence, be such that our national security and economy will demand the then immediate availability of significant production from oil shale. The problems which now obstruct the development of our oil shale deposits are many and complex, but they are not insoluble. It is apparent, however, that a prompt and vigorous start must be made to achieve even such a long range goal as a respectable capacity to produce oil from oil shale not later than 1975. To decide to wait until all of the problems have been identified, studied and solved would, because of the constantly changing effect of other economic factors, be tantamount to a decision not to foster the development of oil shale and in fact to discourage it. While we do not counsel hasty and ill-considered action, we are convinced that the immediate removal of certain major obstacles to oil shale development could assure that operations would permit an industry be commenced in due course. Thereafter, we can address ourselves to the solution of lesser problems. 2. It is our judgment that the two largest impediments to making a start are: (a) the present unavailability of the publicly-owned deposits, and (b) the ex- treme delay by the Department of the Interior in processing oil shale patent applications. PAGENO="0097" FEDERAL OIL ShALE PROGRAM 93 As to the latter problem, we are now making a parallel study and hope to present our views to you in the near future. It is sufficient to say here that leaving such an important block of lands in limbo is not conducive to prompt development and is not in the public interest. It is to the unavailability of the publicly-owned deposits that we primarily address ourselves in this letter. As you know, the thickest and richest deposits of oil shale and a very large percentage of the total reserves lie in the public domain. It makes obvious sense, in a situation where present technology is relatively primitive, that the pioneering in research and development will better be con- ducted in higher grade areas. The improvements in technology which will inevitably result will then make economically available the lower grade deposits. It follows clearly that the first step which must be taken is to make a reason- able portion of the public domain lands available to industry for further explora- tion, research and development at the earliest possible time on terms that are reasonable and fair to industry and also serve and protect the public interest. 3. An impediment to prompt action, whether it be under existing laws and regulations or in the formulation of new laws and regulations, is the limited amount of technological background in oil shale development available to both government and industry to provide guidelines for an appropriate leasing policy. The obvious dilemma is that without such experience it is difficult to formulate a sound leasing policy, and without a leasing program we cannot obtain the necessary experience. It is believed that the program we hereafter recommend will provide a solution to this dilemma consistent with the full protection of the public interest in these lands. 4. In formulating any leasing policy appropriate recognition of the public interest is of paramount importance. Although not an exhaustive list, it is essential that a sound leasing program give full consideration to: (a) An appropriate compensation to the public, through payments of lease bonuses, rentals and royalties, by private industry; (b) Full recognition of the importance of the development of this sup- plemental energy source as a national and hemispheric defense measure and as a significant stimulus to our country's economy; (C) Full recognition of the importance of maintaining strong and healthy industries in the fields of conventional oil, gas, coal and other energy sources; (d) Appropriate but subordinate recognition, via an appropriate import control program, of the value to our international position of a reasonable foreign oil import program; and (e) The additional employment opportunities inherent in a multi-million dollar industry, and the hundreds of collateral manufacturing, service and supply functions required to sustain it, are of tremendous national interest- and particularly to the presently depressed mining communities of the nation. In addition to the foregoing specific matters it is obvious that the stimulation and improvement of the various technologies used in oil shale development can- not fail to add materially to the value and utility of the nation's other great energy sources. 5. It is submitted that all of the foregoing matters can be reconciled by your enunciation and prompt implementation of the following suggested program: E~vecutive Order No. 5327, dated April 15, 1930, withdrawing oil shale deposits from disposal should be revoked at the earliest possible time, at least as to the tracts of land involved in the First Phase of the suggested leasing program out- lined below. The Ea~isting Law relating to oil shale leasing provides an adequate basis for the First Phase of the leasing program. The E~risting Regulations, with a minimum of alteration, provide an adequate basis for the First Phase of the leasing program and should be amended, not revoked. The First Phase of the leasing program should be the simultaneous offering of a limited number of representative but high-grade tracts of oil shale lands for lease under competitive bidding procedures. The Lands so offered should be carefully selected to assure that they are not subject to the cloud of unpatented mining claims, and should be in reasonably compact blocks. Such lands should be selected with a view to the experience PAGENO="0098" 94 FEDERAL OIL SHALE PROGRAM value to both government and industry likely to arise out of operations con- ducted thereon; but should be large enough to permit the lessee to conduct full scale commercial operations. It is suggested that some of the tracts lie in each of the three states and that you consider, but not be bound by, the nominations of prospective bidders in selecting the tracts to be offered. The Determination of the number of such tracts to be offered can either by made arbitrarily, in which case we recommend that no less than ten or twelve 5,120-aëre tracts be offered; or the number can be controlled by economic forces if a much wider selection of various size tracts is offered with an announced minimum acceptable bid for each tract. The advantage of offering only a limited and specified number of tracts is that the bonuses offered will no doubt be at the highest level; but this same fac- tor may, in practical effect, limit participation to a few companies. The advantage of a much wider offering of tracts subject to minimum accept- able bids, particularly if some smaller tracts are included, is that consistent with realistic protection of the public interest a much wider participation in the pro- gram is possible, including participation by smaller companies and independents. There is no doubt of the desirability of broad participation. The Competitive Bidding Procedure could proceed as follows: (a) Announcement of the legal description of the tracts to be offered, the minimum bid acceptable for each tract, the order in which the tracts will be offered for leasing at the time bids are opened, the form of the lease to be issued, the times and places of bid submission and opening, and the other usual matters now contained in announcements of bidding for off- shore lands or lands on known geologic structures; (b) Prior to the bidding interested persons should have access to the tracts to be offered to conduct exploratory drilling and make such other evaluation as they wish to perform; (c) Each bid submitted would be a sealed bid of the amount of cash bonu~ the bidder is offering for a lease. In the form hereafter mentioned, on the entire tract for which the bid is made, together with his deposit of a certified check for 20% thereof. No aspect of the lease other than the cash bonus would be Involved in the bidding; (d) Any interested person, company or associations making joint bids would be entitled to submit a separate sealed bid on any or all of the tracts offered. ~ro avoid undue hardship, checks submitted in connection with earlier opened bids could by reference become the deposit for subsequent bids. No person, company or association, directly or indirectly, could par- ticipate in more than one bid on each tract and the usual requirements con- cerning unlawful combinations should apply; (e) At the opening of bids, which should occur about six months after the announcement, all bids relating to the first tract to be offered would be opened and the highest qualified bidder offered a lease upon payment of the remainder of the bonus offered; (f) If the successful bidder of the first tract offered had also submitted bids on other tracts, his other bids woul be returned to him unopened be- fore the second bid opening takes place; and (g) Successively, bids would be opened on the remaining tracts with each successful bidder in turn being excluded from subsequent bidding. The Lease Form should be substantially the same as is now prescribed in 47 L.D. 426 with the following amendments or special terms: (a) Royalty.-Initial rate of 5% of the market value of shale oil produced as a result of the initial retorting of oil shale or produced at the well bead by in situ operations. Royalty to continue at the 5% level for the first twenty years of the lease, after which time the royalty would be the same as then established by law or regulation for leases then granted. The point in the oil recovery process at which the market value for royalty purposes should be determined is the crude shale oil resulting from conventional re- torting techniques, prior to hydrogenation or other upgrading or refining processes. (b) Term of Lease-Ten years and as long thereafter as l)roduction of oil from oil shale is maintained or the lessee meets the continuing diligent performance of development and production requirements specified by you to be performed to hold the lease. PAGENO="0099" FEDERAL OIL SHALE PROGRAM 95 (o) Development Requirements-Commencing not later than the third year of the lease and continuing for a three-year period lessee should be required to expend no less than $1,000,000 annually (or some equivalent acreage charge if lease sizes vary) on or for the benefit of the leased premises in research, experimentation and development leading to a pro- gram for the commercial extraction of oil from the oil shale under the leased lands. Expenditures of the same type voluntarily made in the first two years should be allowed as a credit on any succeeding year's require- ment. Thereafter during the primary term the lesesee should be obliged to proceed with reasonable diligence toward the same objective. Recognizing that the First Phase of the leasing is in large part an experi- mental beginning designed to encourage the development of an industry, every care should be taken to prevent lessees from holding lands in idleness. At the same time, however, the lease requirements should not be so onerous as to pre- clude strong competition in the bidding or to preclude considerable flexibility to the lessee in the type and location of the research, exprimental and develop- ment work required. Our suggestion that the royalty be set at a 5% rate is not in the nature of an incentive to encourage activity. It is largely based upon advice to us, from persons believed to be knowledgeable, that the present and at least short-range future economic structure of an oil shale industry (i.e., at least until 1985) requires that the royalty level be at about that rate. This royalty level is con- sistent with historic royalties for mining ventures. The second Phase of our suggested program should commence simultaneously with the First Phase and should involve serious and thoughtful consideration of an improved law and companion regulations. It is suggested that this work, including all necessary studies and hearings, should easily be completed by early 1967. It is probable that by then only a limited amount of experience would have been gained from lease operations under the First Phase so that in mid-1967 (or earlier if possible) a second limited competitive bidding pro- gram should be offered, hopefully, but not necessarily, based on improved laws and regulations. The Third Phase to follow should be a continuation of the step-by-step phi- losophy, including a continuation of iuiprovements in the law and regulations looking toward a fairly definitive policy and program no later than 1970. Be- fore this time there should be available important and usable experience factors and data which should aid in formulating a good and workable system. $uggested improvements in the law and regulations (which need not be accomplished to permit the First Phase to proceed) should include: (a) The right of lessees of leases issued under the First and Second Phases to exchange their leases for the more modern forms sure to result from improved laws and regulations. (b) Clear recognition of the right of lessees to unitize or pool leases under a common plan of development and operation. It is apparent that either mining or in situ operations of the magnitude which will be required can best be conducted under such a plan and that the commitment of large res- erves to a single plant or pipeline is essential to permit the very large financ- ing that will be required. Unitization is also historically one of our most effective conservation devices. In this connection we believe that Colorado can be encouraged to adopt suitable oil shale conservation and mine safety laws which will remove fear of anti-trust violations and permit continuation of the fine relationship which exists between our conservation and safety agencies and the United States Geological Survey and the Bureau of Mines. (C) Without respect to what is done about the acreage limitation, a lessee should not be limited to one lease. It is essential that some flexibility in this matter be possible so that rearrangements of holdings may be made to reach the most efficient development and operating patterns of ownership. (d) The acreage limitation should at least be enlarged to permit a lessee to hold 5,120 acres in each state. In fairness to our sister states ot Utah and Wyoming, the door should be opened to encourage prompt development in every state. Generally, there does seem to be merit in increasing the acreage limit above 5,120 acres at least as to tracts having I-wer grade reserves. In fact, once a reasonable number of operators have affirmatively entered the picture, there may be no reason not to permit a sizable increase in the acreage limit. In operations of this magnitude, the economic forces PAGENO="0100" 96 FEDERAL OIL SHALE PROGRAM inherent in the size of investment required and the laws of supply and demand are the most effective regulators in any event. (e) Leases should contain appropriate force majeure provisions allowing a suspension of obligations in the event of unusual occurrences. It is our hope that you will proceed at the earliest possible time to declare as your policy the program herein suggested. We shall be blad to meet with your representative to discuss our suggestions in more detail and intend to par- ticipate in any public hearings you may choose to hold. Respectively submitted, JoHN A. Lovz, Governor of Co1~orado. The CHAIRMAN. Our next witness is Capt. Albert S. Miller, U.S. Navy (retired), former Director, Naval Petroleum and Oil Shale Reserves. We are pleased to have you with us again. Captain, you may proceed in your own way. STATEMENT OP CAPT. ALBERT S. MILL1~R, U.S. NAVY (RETIRED), DORMER DIRECTOR, NAVAL PETROLEUM AND OIL SHALE RESERVES Captain MILLER. Thank you, Mr. Chairman. Mr~ Chairman and members of the committee, my name is Albert Stanley Miller. I am a retired captain of the TJ.S. Navy. From 1954 to 1960, I was Director, Naval Petroleum and Oil Shale Reserves in the Office of the Under Secretary of the Navy, the same position that Captain Moore now holds. During my tenure of office, I became greatly interested in oil shale as a potential source of energy for national de±ense purposes. It was my thought that an oil shale industry, no matter how small, should be developed in order that, in time of need, the "bugs" of the processing of the oil shale into oil would be ironed out and the per- fected process would be available for use by the armed forces. Thus, we would avoid the fiasco which took place at the outbreak of World War II when a crash program came into being to produce synthetic rubber. Since my retirement from the Navy on June 30, 1960, I have become a consultant in private industry, and I have tried to follow the efforts to develop an oil shale industry. At this point, I would like to ob- serve that, as a former Director, Naval Petroleum and Oil Shale Reserves, I concur heartily in what has been said here yesterday by Captain Moore as to the need for a viable oil shale industry for our national security and economic development. The members of the committee will recall that the same basic position was set forth at your 1965 hearings by Capt. K. C. Lovell, who was my successor in office. Now I would like to make a few comments on the program of the Department of Interior which is before you. First, the Secretary speaks, in point 3 of his press release of Jan- uary 27, of a two-step leasing program. The first part would be, in the Secretary's words, "Access to necessary acreage of oil shale lands for testing purposes~" Then, and only then, would "larger tracts for commercial development" be made available. Mr. Chairman, several companies have pioneered, at their own ex- pense and on private lands, oil shale development. They should have the answer to this question: Is this announced two-step leasing pro- cedure a fixed pattern which must be followed by everyone, one step PAGENO="0101" FEDERAL OIL SHALE PEO4~RAM 97 at a time, or could one who has developed a demonstrated expertise on fee lands, through his own efforts and expenditures, embark upon step 2 forthwith? Several companies can be considered as "pioneers." Three that come to mind are the Union Oil Co. of California, the Oil Shale Corp., and the Standard Oil Co. of Ohio. The pioneer has expended con- siderable sums in developing oil shale deposits in privately owned lands. It does not make sense that the pioneer should have to make a rerun, so to speak, in order to prove his accomplishments. Would the Secretary recognize the pioneer's efforts and accomplishments and make a realistic arrangement with him for the test of truth; namely, commercial production? Of course, it is assumed that the pioneer wouIc~ provide satisfactory proof to the Secretary that he has, in fact, made these accomplishments. Mr. Chairman, I want the record to be clear. I speak as an mdi- vidual who has been interested in developing an oil shale industry for many years, since 1954 to be exact. I do not speak for any company or any industry. I cite the above example as one possible soft spot in the Secretary's program. I emphasize that these pioneers should neither be excluded from participation in the Federal program nor ~ should they be required again to expend their money and time in mak- ing a rerun, on public lands, of their achievements. It would be manifestly unfair to exclude the owners of fee-deposits from full participation in the Federal program or to penalize them for pioneering enterprise. The cost of retorting a ton of oil shale, regardless of oil content, is approximately constant. The main ad- vantage of using Federal lands is that there are more barrels per acre in these lands than there are in most private lands. Thus, the return for money expended in retorting is greater as oil content increases. As one who has followed oil shale development for many years, I submit, Mr. Chairman, that we are reaching the stage in oil shale that appears to have been reached in the conversion of saline water. You will recall that at your recent hearings authorizing the appropri- ation of some $457 million in Federal funds for participation in the proposed conversion plant with a capacity of 150 million gallons per day utilizing nuclear energy, Assistant Secretary of the Interior Frank Di Luzio appeared before you and expressed the vigorous posi- tion that study, as such, of saline water conversion had reached a point of no return and that what was needed was commercial scale production before further progress was likely to be made. So it is with oil shale development. I am convinced that the state- of-the-art has advanced to the point that what the Secretary of the Interior should do is to encourage commercial scale production so that we would really know where we stand. This is the test of truth. And now, Mr. Chairman. I would like to turn to another point. In addition to the program of the Secretary of the Interior, is i-hcre any way that the Con i~ress can help in establishing an oil shale industry? You are aware of the assistance that other countries have given to pew industries. Captain Moore has indicated that a plant producing 50~OO0 barrels per day would require capital investment in the order of $100 million. This is a large amount for the private sector of any PAGENO="0102" 98 FEDERAL OIL* SHALE PROGRAM industry to provide. Congress can assist private industry in getting such a project started not by participation financially since that in- volves regulation but by making it attractive, perhaps in the area of limited tax relief. I provide no suggestions as to the how; I merely submit that some assistance from the Congress clearly is indicated. And this brings me to my closing remarks. I think the Secretary is to be commended on his policy position that oil shale shall be developed in the historic American tradition-through private enterprise and private initiative, and that we will not be burdened with outright Government participation in the production of oil from oil shale. The history of the development of the mineral resources of the vast public domain of our country irrefutably shows the wisdom of such a course. This committee is and can be the key factor in the carrying forward of this great tradition and in the establishment of a going oil shale industry on a sound economic basis. That concludes my statement, Mr. Chairman. The CHAIRMAN. Thank you, Captain Miller. You have had very valuable, direct experience in this field. The committee certainly wel- comes your comments. You have raised several points here that I know will be most helpful to us. Senator Allott? Senator ALLOTT, Yes. Captain, first of all, I think you deserve recognition for the part-the very active part and helpful part-you played when you were in charge of the Naval Reserves. I want to express that now publicly. Captain MILLER. Thank you, sir. Senator ALLOTT. We appreciate it very much. One point, only, I want to question you about. You pointed out that the cost of retorting is approximately the same regardless of the richness of the shale that is run through the retort. This is correct? Captain MILLER. That is right, sir. That is my understanding. Senator ALLOTT. Now, in that event, the point you make, and 1 think it needs underscoring, is that the future leasing policy of the Federal Government ought to be set out as soon as possible. You have also pointed out that the shale lands which are privately owned do not consist of the richer deposits of shale. Captain MILLER. That is right. Senator ALLOTT. Generally, so that as I get your point, then, a com- pany or companies who develop their own oil shale lands without any guidelines or indication or legislation from the Congress as to what future leasing policies will be might develop its own relatively unrich shale lands and find itself tomorrow, figuratively speaking, in compe- tition with a company which was the beneficiary of a subsequently announced leasing policy which places it in a completely unfair com- petitive position with the company which has already done the work and done the exploration and done the pioneering. Captain MILLER. That is very much a possibility, sir. Senator ALLOTT. And for this reason, you take exception to a rigid two-point leasing policy and think that it would actually tend, as I personally believe it will tend* to do, to slow down the total deirelop- ment because what any individual company will do will depend to a PAGENO="0103" FEDERAL OIL SHALE PROGRAM 99 great extent upon what the leasing policy of the Federal Government is going to be. Captain MiLLER. That is right, sir. Senator ALLOTT. Thank you very much. And I do appreciate your testimony this morning. Captain MILLER. Thank you, sir. The CHAIRMAN. Senator Moss? Senator Moss. Captain Miller, I, too, appreciate the fine work that you have done in this field and appreciate your testimony here today. I take it from your statement that you are convinced that the state of the art is already advanced to the point that we should be moving di- rectly to large scale production. Does this mean that you hold out little or no hope for the in situ retorting process? Captain MILLER. I am not very enthusiastic on the possibilities of in situ production. Senator Moss. So your reference to the state of the art is the method of taking the rock out and crushing it? Captain MILLER. The conventional method, mining, crushing, retorting. Senator Moss, Is there a rough estimate now on the cost of produc- tion of a barrel of oil by the retorting process, taking care of all these problems of restoring the rock and so on? Captain MILLER. Let me put it this way, Senator. The Govern- ment spent in the neighborhood of $17 million at Rifle, another $6 million in basic research at Fort Laramie Station. They did not com- plete the job with that expenditure of money. That is the reason for the operation at Rifle today. The Union Oil Co. took 2 years and their own money and built a plant that processed the shale and got all the answers they wanted. The cost figures I do not have. At oue time it was stated at an American Mining Congress meeting in Denver that they had gotten the cost down to below a dollar a barrel. How far below, I do not know. But they, in 2 years, found out the answers and tore the plant down and said at that time if they had the same deple- tion allowance that petroleum has, they would be competitive. That was a statement made by the president when they closed down. Senator Moss. So it is in the relative range of difference between the depletion allowances? Captain MILLER. That was the statement made. Senator Moss. Thank you very much. The CHAIRMAN. Senator Jordan? Senator JoRDAN. No questions. The CHAIRMAN. Senator Hansen? Senator HANSEN. I want to commend you for the excellent state- ment you have made, Captain Miller. Captain MILLER. Thank you. Senator HANSEN. I am not sure I understood how much money you said had been spent in basic research at the Laramie Station. Captain MILLER. As I recall the figure, $6 million-a total of $23 million expended by the Government on the program. Senator HANSEN. $17 million at Rifle and about $6 million at Laramie? Captain MILLER. Six. PAGENO="0104" 100 FEIiFmAL OIL SHALE PROGRA~I Senator HANSEN. I also want to commend you for the statement you made of the threat that is posed to our national security by per- mitting time to run out in this regard. I agree completely. Captain MILLER. Thank you. Senator HANSEN. No further questions. The CHAIRMAN. Senator Allott Senator ALLOTT. Just one question. I do not want to try to correct you, but was not the dollar figure that you mentioned in reference only to the retorting? Captain MILLER. That is right. Senator ALLorr. Not to the mining or the disposal of the material? Captain MILLER. No. Cost of retorting. Senator ALLOTT. Thank you. The CHAIRMAN. Thank you, Captain. We appreciate having your statement. Our next witness is Mr. Frank Wallick, representing the United Auto Workers. Mr. Wallick, we are delighted to have you. You have a prepared statement. STATEMENT OF FRANKLIN WALLIcK, WASHINGTON LEGISLATIVE REPRESENTATIVE, UNITED AUTOMOBILE, AEROSPACE, AND AGRICULTURAL IMPLEMENT WORKERS OP AMERICA, AFL-CIO Mr. WALLICK. Thank you, Mr. Chairman, members of the commit- tee, I am Franklin Wallick, Washington legislative representative of the United Automobile, Aerospace, and Agricultural Implement Workers of America, and on behalf of our organization I appreciate the opportunity to appear before this committee to discuss public policy regarding oil shale. The UAW believes that Congress should move with extreme caution in leasing public land for private development of oil shale. Oil shale deposits may be worth some $300 billion, and I think that is a very low estimate, and at least 85 percent of this is located on public land. Few Americans today realize how rich they are, and they have every right to know precisely what the implications are of any private leas- ing of so vast and rich a national resource. John Kenneth Gaibraith, a member of Secretary Udall's Oil Shale Advisory Board, issued a warning, to which we in the UAW fully subscribe, when he said: The American people are not presently aware of the wealth they own in these deposits. It is important both for the conservation and wise and equitable development of these resources, that there be the widest public knowledge of this endowment and the issues concerning their exploitation. An informed public will be a major source of strength to officials seeking sound conservation policies. We urge that all conservation-minded members of the Congress and the public inform themselves fully on this vast resource and policies concerning its use. Those words were written 2 years ago. They are still true today. The American people, I fear, are in the dark about oil shale and what it means to this Nation. These hearings are a welcome opportunity for the public to understand better the consequences of Government policy on so rich a public treasure. PAGENO="0105" 1~EDERAL OIL SHALE PR~YGRAM 101 Speaking strictly ~s a lay member of the public, there are several questions I feel ~worth raising at this juncture: 1. A totally new allocation of royalties should be made if any oil shale leasing is undertaken. In our view it is unsound public policy for 521/2 percent of all royalties to go for reclamation purposes, 371/2 per- cent for the respective State, and only 10 percent to the Federal Government. With the enormous demands for Federal funds to rebuild our cities, acquire land for outdoor recreational purposes, combat air and water pollution, and the financial needs of modern education, we believe Congress must come up with a modern allocation of royalties if oil shale deposits are leased privately. 2. We question if leasing of surface deposits at this time is desir- able. It would be a great tragedy for the whole Nation if Colorado and Wyoming came to look like parts of West Virginia and Kentucky, which bear the ugly scars of and to this day are being disfigured by strip mining. It would be much wiser to experiment with safe under- ground recovery methods and demonstrate their feasibility before surface mining is permitted. May I just throw in there that I appreciated very much Senator Allott's discussion with the AEC yesterday about some of the safety problems involved in underground atomic testing, and we do not pretend to have any final answer on this thing. We just think it is a matter that needs to be fully aired, discussed, and explored. 3. While strictly developmental leasing may be wise and necessary now, the Federal Government should have the right to renegotiate any leases on public land once a feasible claim is operating, so the public interest will be fully protected. The present 12'/2-percent royalty on publicly owned oil and gas deposits may be justified, but this may prove later to be much too generous to the commercial oil companies. Any leasing arrangement on public land ought to be subject to review so the public interest is fully protected. I may also add at that point that it would be good public policy, in our view, if the oil shale advisory committee could be continued under the leadership of Mr. Fisher and certainly we would like to see Mr. Galbraith back. 4. Great caution should be taken not to damage watersheds and wildlife which could be irrevocably destroyed by reckless leasing. So finally, Mr. Chairman and members of this committee, we urge Congress to move with great caution on oil shale; to review royalty allocation so the Nation's neglected social needs will be helped; develop safe underground recovery methods before scarring the surface; protect the public interest by a review of the present 12l/2-percent royality; and protect watersheds and wildlife. Congress, we believe, has a great opportunity to use this immense national resource to advance education for millions of American young people and other worthwhile programs to improve the quality of life for all Americans by dedicating oil shale royalties for these special purposes. The CHAIRMAN, Thank you. Mr. Wallick. We appreciate having your statement. It is very helpful. PAGENO="0106" 102 FEDERAL OIL SHALE PROGRAM The point that you made about getting the public interested and concerned in this, of course, is the purpose of these hearings. We had hearings 2 years ago, as you recall, in an effort to inform the public and all those who have some special interest in the develop- ment of this resource. That is why we are holding the hearings again, to give citizens, groups, and associations an opportunity to comment on the five-point program of the Secretary of the Interior. After reading your statement I assume you would agree with the Chair that it is important that we ascertain first of all what the costs are going to be in connection with an oil shale development program. It is rather difficult to come up with a Federal policy, possibly enact legislation to implement it, if one really does not have all the facts. Mr. WALLICK. Exactly. The CHAIRMAN. You would agree on that. Mr. WALLICK. Exactly. The CHAIRMAN. I think what the Secretary of the Interior is pro- posing has great logic. In other words, we do need to get into the research and development effort and then, in addition, it would seem that it would be wise to undertake a large-scale plant so that you could really find out what the possibilities are with reference to recovery, the costs, and other developments. In that way it is deter- mined what kind of a leasing program should be carried out. Mr. WALLICK. Right. We agree. Incidentally, this matter has been discussed at the highest levels of our organization so I am not just sitting here talking for myself. While we feel that oil shale represents a great national asset, a frozen asset is no asset at all. The CHAIRMAN. That is right. Mr. WALLICK. Therefore we feel it is good to proceed and to move on this matter because this is a great treasure for all the American people and it is not going to do any of us any good if it just stays there in the ground. The CHAIRMAN. We should have the means and the knowledge and the techniques based on that knowledge to utilize this resource when the time is necessary. I think the point that was made by a previ- ous witness that the fact that the synthetic rubber program was gone into during World War II in a hurry, without development of the techniques in advance, was a mistake. It had to be done, but it could have been a lot better if that competency had been obtained prior to the conflict. It is conceivable in the future that this country may be in a crisis where it would need to draw upon our shale reserves. If the proper means of utilizing this resource are not available in time, it could cause a lot of trouble. You would agree on that? Mr. WALLICK. I agree with that, Senator. The CHAIRMAN. I think the main thing needed here is, as any prudent person would do under the circumstances, is to get the facts, find out all that is really involved. By undertaking the first step to ascertain knowledge of this new industry, we can better make the judgments that the Congress must make. The point you raised about the division of royalty receipts of course, goes to all of the royalty programs, not just oil shale, I think. Mr. WALLIOK. That is right, except that it certainly is raised in this matter. PAGENO="0107" FEDERAI~ OIL SHALE PROGRAM 103 The CHAIRMAN. Well, it is brought to the fore, but there are a lot of royalties that are being obtained now, too, that apply to the oil in- dustry as a whole. Mr. WALLIOK, Right. The CHAIRMAN. We appreciate having your comments. Senator Allott? Senator ALLOTT. Mr. Wallick, just one or two questions. You say that this matter has been given much study by the highest level of your organization? Mr. WALLICK. Well, we do not pretend to be expert on this matter, but we recognize that this is a great pressing national question at this time, and it has been discussed. However, I am not suggesting that we are coming here as experts. Senator ALLOTT. Well, let me ask in~ all kinds of friendliness, have you ever called into your high councils the people in this country ~ho are really knowledgeable about this? For example, any of the actual people doing the research on oil shale at the present time? Mr. WALLICK. No, but that would be an excellent idea, and we would be willing. Senator ALLOTT. Or such people as Mr. Cameron who was here this morning. Mr. WALLICK. I would be very happy to suggest that be done. Senator ALL0TT. There have been three oil shale symposiums con- ducted in Colorado to date and the fourth, I believe, will he held in April. I have attended two of those three and there were repre- sentatives from all over the United States-scientists who frankly lose me in their explanation of processes and other scientific explorations- between 200 and 300 present, scientists and knowledgeable people in this area who participated. Have you or any of your representatives ever attended any of these? Mr. WALLICK. I could not say for sure, Senator A.llott, because we do have members in Colorado, as you know, and there may or may not have been some of our people there. I would certainly encourage them to go and if you will tell me where the next meeting is held- Senator ALLOTT. I think it would be better if some of the people who make these decisions in your organization-and I say this kindly- attended some of these symposiums. Mr. WALLICK. That is an excellent suggestion. Senator ALLOTT. And became firsthand acquainted with the prob- lems that we are trying to isolate here so that we can form a decision. I don't believe any of us on this committee feel that we have permanent answers to these things yet. For example, I assure you that those of us who are residents of Colorado, TJtah, and Wyoming are as interested in the conservation and preservation of our natural values there as anybody in the United States. Mr. WALLICK. I am sure you are. Senator ALLOTT. They are a part of our heritage, and we do not intend to- Mr. WALLICK. You are very lucky, too, I might say. Senator ALLOTT (continuing). Throw them down the drain. You refer, for example, to one thing in here. You say the legal question of leasing of surface deposits at this time is desirable. Do you know where there are any surface deposits of oil shale? PAGENO="0108" 104 FEDi~EAL 011 ~TAL1~1 PR0GRA1~ Mr. WALLIOX. Well, what I meant to say-perhaps I did riot phrase it properly-but it would involve some kind of what would amount to stripmining, as I understand it. Now, maybe I am in- correct on this, but I have been told by people who are in a position to know that this would be the equivalent to stripmining, so that there would be large deposits of residue left over on the ground. If this is wrong, I would be very happy to stand corrected. Senator ALLOTT. Well, some of it might possibly be susceptible to stripmining, but most of the oil shale appears on the surface only in outcroppings along ledges of hills, and even that is covered-even in the most favorable places that I know of-with a considerable amount of overburden. Mr. WALLICK. I might say, Senator Allott, that I have been im- pressed by the conservation attitude of a great many of the people on the Oil Shale Advisory Board who commented on this problem. I do think there is a consciousness of the conservation aspect of this whole question. But I do think that it would be very unfortunate if what is still happening in West Virginia and Kentucky were to happen in any part of this country because you can fly over those parts of the country and you can look down and see it, and it is not a very pleasant sight to see. Senator ALLOTT. Well, we are fully aware of what has happened in those areas, but I would suggest that this problem cannot be solved just by absorbing the viewpoint of an economist who is relatively un- informed on this matter, and that it would really be of immense help to you in arriving at a decision if you could talk with and bring in some of the people who are knowledgeable with the theoretical and practical aspects of this, and, even if some of you could, at this de- cisionmaking level, attend some of these oil shale symposiums. If you call my office- Mr. WALLIOJL They are in Colorado. I could ~iot say a better place to go. Senator ALL0TT (continuing). You will be informed when the next symposium takes place. Thank you. Senator Moss. Thank you, Mr. Wallick, for your fine testimony. I think it is good to have these matters brought to our attention. I take it that your organization was not very well satisfied with the decision in the tidelands matter when the lands were given over to the States completely and the Federal Government simply bowed out. The burden of your testimony is urging the Federal Government to retain control and make sure that oil shale lands are developed in the public interest. I notice that one of your reasons for advocating the Federal royalty share be increased was to combat air and water pollution, but is that not a State responsibility? Is not the State going to have to grapple with that? Mr. WALLICK. Well, as far as providing funds for some of the pro- grams, I think the Federal Government is going to have to, and is now, put money into that. Senator Moss, Indeed the Federal Government is, but if the de- velopment of this oil shale industry appreciably increases air and PAGENO="0109" I~'EDERAL OIL SHALE PROGRAM 105 water pollution, the burden will come first of all on the State where it occurs and it may get some assistance from the Federal Govern- ment. Mr. WALLIOK. I was thinking of our present problems of pollution and the necessity for getting money to deal with that. That is what I really had in mind there. Senator Moss. Thank you. I appreciate your testimony. The CHAIRMAN. Senator Jordan? Senator JORDAN. No questions. The CHAIRMAN. Senator Hansen? Senator HANSEN. No questions. The CHAIRMAN. Thank you very much, Mr. Wallick. We appre- ciate having your testimony. We hope you will follow the hearings from time to time. Mr. Angus McDonald, director of research, Farmers' Union, was to be our next witness. We have been informed that he is out of town and apparently misunderstood the date, although he had been advised of the hearings yesterday and today. The Chair will leave the record open so that he may submit a statement for the record at a later, date or if there are additional hearings, of courses he will be able to testify. Our last witness is Mr. J. H. Smith, Jr., Wolf Ridge Minerals Corp., Glenwood Springs, Cob. Mr. Smith? The Chair is delighted to welcome you .to the committee. I recall with interest your very fine service during the 1950's as Assistant Sec- retary of the Navy and later as director of the International Coopera- tion Administration, now known as AID, I believe. We are delighted to have you, and we appreciate your fine service to the Federal Govern- ment. Mr. SMITH. Thank you, Mr. Chairman. The ChAIRMAN. The Chair has read your statement. I regret that I have another commitment. I am going to ask Senator Moss to pre- side during my absence, and the Chair has previously indicated that when we complete this morning's hearings, we will adjourn subject to the call of the Chair and the record will remain open so that those who desire to comment on the testimony may submit statements or, in the judgment to be made later by the Chair, we may have additional hearings for those who want to be heard. STATEMENT OP 3. H. SMITH, ER.; ACCOMPANIED BY ARTHUR S. BOWLS, JR., AND IRVIN NIELSEN, WOLF RIDG~E MINERALS CORP., GLENWOOD SPRINGS~ COLO. Mr. SMITH. Mr. Chairman, my name is James H. Smith, Jr. I rep- resent the Wolfe Ridge Minerals Corp. The views I am expressing are endorsed by our associated companies, Advance Ross Corp., the Utah Shale Land Co., and Colorado Minerals Corp. Mr. Bowes and Mr. Nielsen, the two senior offices of Wolf Ridge, are with me because we felt that the matters that your committee are dealing with are extremely important. Both oil and aluminum are vital commodities. I would like to have Mr. Bowes and Mr. Nielsen come up here if that is acceptable to the Chair. PAGENO="0110" 106 FEDREAL OIL SHALE PROGRAM Senator Moss (presiding). That will be fine. Have them come to the table. Mr. SMITH. Mr. Nielsen right here, and Mr. Bowes. Senator Moss. Glad to have you gentlemen join us. Mr. SMITH. We appreciate this opportunity to comment on the five- point program for oil shale development which was announced by the Secretary of the Interior on January 27, 1967. Wolf Ridge Minerals Corp. is a Colorado corporation engaged in development of natural resources, principally in western Colorado, Utah, and Wyoming. The company is committed to the objective of participating in the creation and orderly development of an integrated mineral-chemical-industrial complex. The company's management and stockholders firmly believe in the feasibility of this concept and that such a development would bring significant benefits to the United States and to the individual States involved. The company's technical and field operations are headed by Irvin Nielsen, a geologist who has been active in evaluating the geology and mineral resources of the Green River formation for the past 10 years. The company's research efforts are under the direction of John Savage of Rifle, Cob., a chemical engineer who has been engaged in the inves- tigation and development of mineral resources for over 20 years. Both Mr. Nielsen and Mr. Savageare members of the corporation's board of directors. The other members of the board are Samuel R. Freeman, partner in the law firm of Van Cise, Freeman, Tooley & Eason, attorney for the Colorado Oil & Gas Conservation Commission since 1954, and also formerly assistant attorney general of Colorado; Arthur S. Bowes, Jr., who is with us here today, Chicago, Ill., invest- ments and financial consulting; John P. Boynton, Milwaukee, Wis., investments and oil and gas interest, and myself. I have been active in the development of western resources for 20 years and have served the Federal Government as Assistant Secretary of the Navy and Di- rector of the International Cooperation Administration. Wolf Ridge Minerals Corp. is an independent company and is not controlled directly or indirectly by any other company. It is asso- ciated with several other companies, however, in some of its work. In addition to its own staff, the company has made extensive use of out- side consulting laboratories and experts. The reason for appearing here is that the company has completed, in the last 3 years, sufficient geologic, process, and economic research on Green River formation strata to prove that its sodium exploration permit cores represent valuable discoveries of nahcolite, dawsonite, and other minerals. The minerals in this formation will yield alu- mina, soda ash, oil, and organic materials and can be produced from the same raw material produced from the same mine. The company has developed, in the laboratory, a series of processing techniques which can separate and produce each of the above minerals. rphese can generally be described as follows: 1. Mined rock is crushed and selectively screened to remove a range of "fines." The mineral nahcolite will be concentrated in the fines because of its tendency to crush to finer particles than the tougher or more elastic host rock. 2. The nahcolite fines or concentrates will be sent to a soda ash sec- tion for processing. PAGENO="0111" FEDERAL OIL SHALE PROGRAM 107 3. The remaining crushed rock-about 80 percent of the total-will he routed to the retorts for recovery of condensible hydrocarbons and conversion of dawsonite to a more soluble sodium aluminum oxide. 4. ~fI~ retort ash will be sized by a simple crusher for an optimum leaching. The retorted rock has a very low strength and can be in- expensively reduced in size. 5. The properly sized material will be leached with a mild caustic solution for a short interval of time. Laboratory test results to date show that this process has recovered up to 95 percent of the available aluminum. The residue is easily washed and the solution easily filtered because the rock does not contain a hydrated clay. Also, since no high pressure-high temperature digestion techniques are involved, the quan- tity of dissolved impurities is small. 6. The final waste, less than 50 percent of original material, will be sent to a tailings pond. 7. The "pregnant" alumina and soda ash bearing solutions can be trea~ted by conventional means to extract soda ash and alumina. The solutions can be recirculated to build up alumina and soda ash concen- trations because of the ease of leaching and washing the granular rock and the ease of filtering the solution. Offsetting the relatively low alumina concentration are the advan- tages of low cost per ton and ease of crushing, leaching, washing, and filtering which combine to make the rock appear to be an economically attractive source of alumina. The processing of nahcolite i~ greatly simplified by being able to separate mechanically the rock~ from the nodular nahcolite. The retorting to recover oil is economically en- hanced by removing the essentially non-oil-producing nahcolite. Our work has included a careful, but not complete, investigation of the Piceance Basin. Our exploration and coring was done during the period April 1964 to April 1966, under sodium prospecting per- mits issued by the Department of the Interior. In April 1966, we filed, pursuant to the existing laws, for sodium preferential right leases on the basis of the minerals found in our cores. At that time there was a newspaper report that the minerals found were locatable rather than leasable so we were obliged to go out and stake claims. Consequently, we believe we have taken all the action that could possibly be required of us by any interpretation of the law to permit the next phase of activity. In addition to following the procedures prescribed by law, we have made a presentation to the Secretary of the Interior-verbally on December 7, 1966, and in writing on Janu- ary 10, 1967-outlining what we call the "multiple minerals" ap- proach to the problem of developing the Piceance Basin. I should say here that we did not invent this approach-the nature of the deposit happily forces it on us, because, in our opinion, in some areas the raw material will convert to its maximum value only through processing all of its major components. It may also be economically productive only if this is done. In other words, the profitable recov- ery of any one of these minerals could be interdependent on the re- covery of the others. Commencing with the mining much of the route traveled by most of the material in our process is the same and therefore those costs are spread amongst the several end products instead of solely against one. PAGENO="0112" 108 FItDERAL OIL SHALE PROGRAM In any case, the "multiple minerals" approach is new and is made possible because of the discovery of the additional minerals. We do not offer it in any way that would exclude other approaches. By this I mean other technical approaches. We must emphasize that our work is in the laboratory and limited. We have, at the moment, only a very small quantity of dawsonite, al- though we have almost all there is immediately available. For this reason, we do not suggest any diminution of other efforts to develop the total resources, with which your committee is concerned. We realize that the atomic explosion and the ~n $1tU process may not be compatible in close proximity to the multiple-mineral process but fortunately there is a vast area in which various experiments can be tried without interference. We say "may not be compatible" because we are still receiving some information that has been developed lately which may make it possible to have an atomic explosion in an area in which we have been working. We urge encouragement of all efforts, bearing in mind that the progress of this country has been due largely to those who were will- ing to risk financing experiments which did not promise immediate success and to the fact that all of us do better when under reasonable competitive stress. The Interdepartmental Energy Study Report of the Office of Sci- ence and Technology stated: It is important to learn more about the origin, characteristics, and distribu- tion of oil shales and carbonaceous rocks. We feel we have made a contribution to this, and that there is much more to be investigated by ourselves and others. It may be useful, however, to give briefly the history of the re- search on dawsonite which has preceded this meeting. The existence of dawsonite in the Green River formation of Colo- rado was first noted by Dr. Charles Milton of the U.S. Geological Survey in 1959. The first indication of the quantities of dawsonite in this area was acquired from work conducted by John Ward Smith of the U.S. Bureau of Mines, which he reported in 1963. The first suggestion that dawsonite be considered an ore for aluminum was made by Irvin Nielsen, who is with us today, and John Savage of Wolf Ridge Minerals in November of 1965. Subsequent work by our company, the U.S. Geological Survey, the Bureau of Mines, Kaiser Aluminum & Chemical Corp., Dr. Anthony of the University of Ari- zona, Dr. Hay of the University of California, Kilpatrick Labora- tories of Denver, Hazen Research Inc. of Golden, Cob., Cameron & Jones of Denver, and other research organizations has confirmed that dawsonite may well be a new source of aluminum. This might have remained undisclosed for many years if these public lands had not been opened specifically for exploration for sodium deposits. Now we-industry and government-are faced with the challenge of how to make this deposit into a marketable nationob asset. Continuation of our investigations awaits issuance of the leases by the Secretary of the Interior. Our 2-year prospecting permits expired April last year and we look forward to resuming our work early this spring under appropriate authorization from the Govern- PAGENO="0113" FEDERAL OIL SHALE PROGRAM 109 ment. Point 1 of the five-point program, announced on January 27, 1967, states that "Pending sodium preference right lease applications will be promptly considered on their merits." We appreciate this. We are anxious to resume core drilling on a larger scale to obtain more dawsonite both for our own use and that of the Bureau of Mines, with whom we anticipate cooperating closely. We seek no special rights or privileges and have applied for standard form 4-1134 (March 1964) leases, Our only comment on point 1 is that we believe the most careful consideration should be given to the question whether or not sodium should be returned to withdrawn status. If Executive Order 5327 of April 5, 1930 had not been modi- fied to permit the search for sodium minerals, we would not be where we are today. We suggest that reverting to withdrawn status may deter rather than encourage exploration. It is understood that a number of companies are interested in the "blocking up" provision of point 2, so we will not comment on them. Our lease applications are not involved. Point 3 appears to foreshadow an entirely new relationship between the Government and interested companies, If it means there will be individually negotiated contracts between the Department of Interior and each interested company, it appears that we are moving away from the time-tested provisions of the leasing law to what may be a very difficult administrative task. We also do not believe industry can be expected to. undertake the research--to say nothing of the infinitely more costly development- without the firm commitment of a lease. Certainly such a lease could be revocable if the lessee did not produce, but its issuance must be as- sured. We also feel that this whole area is too new to permit requiring a company to "describe the process sought to be developed." This is the antithesis of research. Our own approach would be to undertake the job of developing our present process or finding a new process without starting with preconceptions, fixed plans, et cetera. We be- lieve in confronting today's problems with tomorrow's technology. On point 4 we welcome the enthusiasm and know-how of the Atomic Energy Commission and its associated private companies. We are fortunate that the development of clean weapons systems permits the use of atomic explosions for such peaceful purposes as this. Other in situ processes should be pursued simultaneously, just as one form of mining should not prevent the investigation of another-for example, we anticipate one method of mining evolving into another, On point 5 we certainly agree with the objectives but we are not sure what is meant by "Some of these research projects will involve close cooperation etc." We feel the issue of where and under whose manage- ment the research is to be done should be faced now. This is an age- old problem-"in-house research," We suggest it is in the national interest to attract industry's best research institutions and to avoid any single-source direction of the research. The chairman (Senator Jackson) of this committee, however, has had so much experience and success in generating good research that we need make no comment. More research will be needed. The amount of funds which will become available for this will depend on the Government's policy decision on the relative importance of developing these minerals. PAGENO="0114" 110 FEDERAL OIL SHALE PROGRAM These funds may come from congressional appropriations, from indus- try, or both-but in any case only in amounts that will depend on what importance is given the matter by the Government. In the energy field, in 1965 the Government spent $11 million on coal research, $40 million on oil and gas, $210 million on nuclear (not in- cluding military and space oriented appropriations). Industry spent the same amount on coal, nine times as much on oil and gas, and less than half as much on nuclear. Thus there is great disparity in the R. & I). efforts in the different segments of the energy sector. This means some segments will progress more rapidly than others. It evi- dences a national policy decision to develop certain types of resources in preference to others. This will determine to a large extent the mix from which we will get our total British thermal units in 1980-coal, oil, gas, nuclear, solar, et cetera, all of which are competing for a share of this market. At the same time, the Government is making important policy de- cisions as to where geographically we will obtain our energy. On- shore, offshore, the North or South American continents, Africa, the Middle East, et cetera, all again vigorously competing for a share of this market. The Secretary of Interior's five-point-shale program is designed to give shale at least a starting position in this race between energy sources. This is most welcome. The announcement of the program refers to the report of the Oil Shale Advisory Board dated February 1965, and part of the program stems from the alternative courses suggested by that Board. In the two intervening years events have occurred which we believe must affect some of the conclusions and recommendations of that Board. The Board agreed that "oil shale development is not urgent to provide supplies of liquid fuel for the immediate future." I would like to add here parenthetically that we do not agree with that. Since that statement the American oil industry has suffered many reversals in its relationship with the foreign countries in which it operates. Our oil companies have been subjected to the following types of unilateral actions-specific examples can be furnished: 1. Abrogation of existing contracts; 2. Revision of tax rates for future; 3. Revision of tax rates retroactively; 4. Unilateral decision on the price of the commodity to be used for tax base, regardless of actual market price; 5. Increase in transit charges; 6. Unilateral decision as to the amount of commodity to be sold, regardless of condition of the market; 7. Seizure of local bank deposits of any company not complying with these decisions; 8. Seizure of all facilities of a foreign company; 9. Termination of concession and all contractual obligations; 10. Imposition of fines greater than the value of the company's property in the country; 11. Use of discrimination to place some companies at a competitive disadvantage; and PAGENO="0115" FEDERAL OIL SHALE PROGRAM 111 12. Insistence that the headquarters of the foreign company be in the host country. In this 2-year period five foreign countries have levied retroactively over $450 million in taxes. The additional taxes paid to these foreign governments are dollars right out of the Treasury of the United States, because they are a tax credit deductible directly from taxes which otherwise would be paid to the United States. We doubt if this situation can be remedied by any means other than the availability of a new alternate domestic supply of oil. Assuming it will take 10 years from the date of the Government's "go" signal to achieve significant production of oil from the Green River formation (or any other new domestic source) we are already exposed to a long period of adverse actions. This is a matter of national concern and while many of the direc- tors and officers of this company are local Colorado people, their in- terest is far from local. Individually for many years they have watched the increasing reliance of the United States on foreign sources of raw materials in the face of a rising spirit of nationalism. I)uring this period disturbing trends have been apparent in the following areas: 1. The national debt; 2. The balance of payments; 3. The gold reserve; 4. The reliance on foreign-flag shipping to handle our peacetime imports; 5. The need for a continuing major antisubmarine effort to assure the safety of such shipping as will be at our disposal in wartime; 6. The migration of U.S. industry with a reduction in job oppor- tunities in the United States; 7. The determination of countries now furnishing raw materials to engage in the processing themselves; 8. The availability of cheap power through nuclear energy to coun- tries heretofore believed to have no economic potential; and 9. The entry of the Soviet Union into the oil and gas market pri- marily on a barter and long-term government-to-government trade agreement basis. These trends and conditions which we consider unfavorable can be reversed by policy decisions of the United States. At least $100 bil- lion of new capital will be invested in the oil industry in the next 10 years. Whether this invention will tend to ease or increase our prob- lems will depend largely on the policy adopted for our own natural resources. The second important change since the Board's report in 1965 has been the recognition of the dawsonite, nahcolite, and other minerals potential. While neither the T)epartment nor anyone else knows the extent of the deposits of "other minerals" it is more than probable that the usable dawsonite and naheolite deposits are smaller horizontally than the 16,000 square miles of the Green River formation. It is certain that these deposits occur only in a fraction of the total vertical deposit of shale. It is certain from the Wolf Ridge minerals cores that these deposits are large when considered by themselves, but small quanti- tatively when considered in relation to the shale deposits. PAGENO="0116" 112 FEDERAL OIL SHALE PROGRAM It is reasonable to assume, therefore, that two very different types of deposits must be dealt with-one composed of shale, dawsonite, nahcolite and possibly other minerals, and the second being without dawsonite and nahcolite. This calls for very different treatment of the two deposits from both a legal and technical point of view. Without going into deail on the law at this time, the difference here is evidenced by the separate treatments historically given shale and other minerals by the Department under withdrawal orders and other administrative actions, as well as by the variety of laws ap- plicable to the specific minerals. The Wolf Ridge studies and cores indicate that some areas of the Green River formation may be chiefly valuable for shale, some for other minerals and some may contain shale and minerals which individually are valueless but jointly may be commercially feasible. This has inescapable consequences. Whether or not there is a need to accelerate the development of the shale oil process, the need for a domestic source of aluminum must be consid- ered. Our aluminum industry is far more vulnerable to unilateral actions of foreign governments than the oil industry. Almost 90 per- cent of our bauxite comes from abroad-from a few countries whose need and desire to strengthen their own economy is no less than that of the oil producing countries. Canada, from whom we import both aluminum and oil, has to import both from these same countries to supply us. Aluminum is also almost as critical a material in both our peace- time and wartime economies as oil. Consumption is rising rapidly, its availability has steadied prices of competitive materials, and the Government has spent substantial Sums encouraging search for new sources, both within and without the United States. We believe the present Government policy with regard to aluminum is: (a) to promote a competitive industry, (b) to encourage the entry of new producers, and (c) to protect the small nonintegrated consumer of ingots or semifabricated aluminum. Mineral Facts 1965 states that: The maintenance of adequate aluminum supply requires assured ore sup- plies. It also requires acquisition of adequate quantities of low cost electric power. And, thirdly, it requires a decrease in the high-energy consumption in producing aluminum. We believe we are advancing a project which serves the policy ob- jectives and which has both the assured ore supplies and the necessary low-cost power. It is hoped also that we will be able to show that the high-energy consumption in producing aluminum from bauxite will be reduced when the process commences with dawsonite. With regard to the Secretary's five additional objectives-encour- age competition, prevent speculation, promote conservation, encour- age fullest use, provide reasonable revenues to Federal and State governments-we are for all of them. We are very conscious of the public interest in these resources, and feel this will be served well by an action program given impetus by Congress and the Department of the Interior and carried out forcefully by imaginative and com- petitive segments of American industry. PAGENO="0117" FEDERAL OIL SHALE PROGRAM 113 I would like to close with a statement on our present activity. We arc awaiting reply to our application for leases. We have used up practically all of the dawsonite from our cores in experimental work, and expect now to continue the work on dawsonite obtained from deposits outside the United States, until such time as we receive the necessary authority to proceed on the Federal lands. We are also working on water and power supplies; on community planning and, with the State, on conservation and pollution control. I appreciate this opportunity to appear before your committee and would be glad to answer any questions. Senator Moss. Thank you, Mr. Smith, for a very fine statement. It reveals to me, at least, the extent of work that your company has been doing in this area. I take it that you have applied for mineral leases in this area, but you have also made mineral entries on the same land in order to cover that claim, too, if it is necessary to go the mineral entry route, is that right? Mr. SMITH. That is correct, sir. Senator Moss. And what is nahcolite? Can you describe that a little and what it is useful for? I know something about dawsonite, but I do not know about nahcolite. Mr. SMITH. I will turn that over to Mr. Nielson, who is our chief geologist. Senator Moss. Will you enlighten me a little? Mr. NIELSEN. Yes. It is a sodium bicarbonate, more commonly known as baking soda, and i~ is useful in making soda ash, which is a basic chemical used in industry-in the glass industry, pulp and paper and ore refining industries, et cetera. Senator Moss. When I take some baking soda, I now know I will be taking nahcolite. Mr. NIELSEN. I would like to make one more comment. Dawson- ite is more familiarly known as Rolaids. Senator Moss. You mean it is a choice between Turns and Rolaids? The method of recovery of oil from the oil shale that your company has concentrated on would be the removal of rock and retorting rather than looking toward this in situ process that we have been talking about, is that correct? Mr. NIELSEN. Yes. We would start out hopefully in the optimum combination of dawsonite-nahcolite and oil in an underground mining section. Senator Moss. And would the process you contemplate permit total recovery or what percentage of recovery of the kerogen from the rock? Mr. NIELSEN. As I visualize it, Senator~ we would use a very small section of the oil shale section durin.g the first one or two generations. The deposits are immense and at a small interval would last a very large-scale plant a long period of time. Eventually, many years after the initial industry is started, I think some complete recovery method would be instituted such as the Brng- ham pit or the block caving system or whatever else might be devised. Senator Moss. Your company is not actually engaged in production now. You are still in the research and development stages. Is that * right? Mr. NIELSEN. That is correct. PAGENO="0118" 114 I~DEItAtk OIL SHALE PROGRAM Senator Moss. Yo~ur hope is that the Congress can rather quickly clear up this problem of withdrawal of some of the minerals so that you can move into actual production; is that right? Mr. SMITH. We were a little discouraged listening to the description of the "legal thicket" yesterday. We do not think we are as involved in that as possibly some other areas are. We feel that it might be possible for us to move ahead faster. However, we are not ready for production at all. We would certainly have to go through a pilot plant phase before we go to a commercial plant. This is the pro- posal we made to the Secretary of the Interior. Senator Moss. Are you part of the group which has agreed to sup- port the research and development work in the in situ experiment? Mr. SMITH. We have agreed to help support the AEC atomic ex- plosion, but we are not involved in the Anvil Point group. Senator Moss. Would your company concentrate on the extraction of nahcolite and dawsonite and work in conjunction with one of the oil companies on the oil part, or would your company do all three? Mr. SMITH. We are not sure which route we would go ahead with. It depends a good deal on what the next step in our research and de- velopment program develops. Senator Moss. You have not made that decision as yet? Mr. SMITH. We have not committed ourselves; no, sir. Senator Moss. Well, your testimony certainly is helpful and en- lightening. We appreciate it very much. Probably there will be some questions from the other Senators. Senator Allott? Senator ALLOTT. Yes. I realize the hour is late, Jim. I want to congratulate you on a very, very fine statement, but I would like to clarify something I am not quite sure about, from Mr. Nielsen-on account of the sound system we have here. Did I understand you to say, Mr. Nielsen, that there were sufficient deposits of dawsonite and nahcolite, which were essentially separated from the oil shale itself, that would permit or had promise of per- mitting a viable industry to develop in just this area alone? Mr. NIELSEN. I am not sure I understand your question, but- Senator ALLOTT. Okay. I will put it another way, then. Did I understand you to indicate that there were sufficient deposits of dawsonite and nahcolite which were essentially separated from the deposits, the oil shale deposits themselves, that you could operate in the foreseeable future and develop a considerable industry with- out getting into the production of oil itself? Mr. NIELSEN. No. That is not- Senator ALLOTT. The reason I ask this is that Mr. Smith, in his testimony, talked about the overall strata of the Green River forma- tion, but he also spoke about vertical areas, which were relatively a small part of the whole Green River formation, in which the dawson- ite and nahcolite were very prevalent. Perhaps it would help if you would geologically explain this situation. Mr. NIELSEN. All right. The dawsonite and naheolite occur intermingled in oil shale. It is not possible to extract dawsonite and nahcolite under most condi- tions without extracting the host rock, oil shale, which is one and the same, in effect. PAGENO="0119" FEDERAL OIL SHALE PROGRAM 115 The richest part of the section is approximately 200 feet thick. However, 600 to 800 feet of the Green River formation contains the two minerals. We belieire that we- Senator ALLOTT. The two what? Mr. NIELSEN. The two minerals, nahcolite and dawsonite. And all of the 800 foot section would yield oil. Senator ALLOTT. This is why, therefore, the forepart of Mr. Smith's statement went into the proposed research and separation of the three chief components you have spoken of today, soda ash, and alumina, and the extracts of the oil from the shale itself. Mr. NIELSEN. That is right. Senator ALLOTT. Now, Jim, I would like to ask you a question. You said on page 9 of your statement-and I do not think you need it. for my purposes-that the proposal of the Secretary is the antithesis of research. Therefore I assume that what you are saying in one sense is first of all that you have got to have leases in order to develop the reserach to the place where you can get it strictly out of the laboratory. Mr. SMITH. That is not exactly the point I was trying to get across when I said this is the antithesis of research. Senator ALLOTT, No. You were referring to the leasing policy. Mr. SMITH. No, we are concerned by the possibility of having the research directed or that we woud have to describe the process sought to be developed before we initiated the research. We think that that closes your mind to the various possibilities. We believe that when you are doing research you should approach the problem with a totally open mind, without any commitments as to what you are going to arrive at. If we had not behaved in that manner, we probably never would have gotten to the position we are with dawsonite today. For example, many people have been involved in doing research on oil shale for years. They have been looking at this mass of rock and they have found out a great deal about the oil shale in it because they set out to find out only about oil shale. What they did not find out, because they did not enter the project with an open enough mind, was the fact that there could be other minerals present that have great economic importance. These turned out to be dawsonite and nahcolite. Senator ALLOTT. Then this leads us to the second point, necessarily, that you cannot do this research without having an opportunity to procure a lease for further research. Mr. SMITH, That is true. We believe that from this point on the research and beginning of development would be an extremely expen- ~ive thing. We feel that the only way you could finance that, particu- larly a small company that does not have a going concern, that has a cash flow and is generating its own capital, that this company will have to have a lease that cannot be revoked except for failure to per- form. In other words, we should not be asked to make this heavy capital investment, and in fact we would not be able to get a bank to bank it, unless we were assured of a lease and sufficient raw material to go ahead if our process is successful and to go ahead for a long enough period of time to amortise the capital investment. Senator ALLOTT. Well, this brings us pretty close to the point I made a while ago with respect to the companies which are interested PAGENO="0120" 116 FRDERAL OIL SRALR PROGRAM solely in oil, that they are, in effect, hanging on the edge of a cliff as far as the development of their own resources until they are assured of what the Government's policies are going to be with respect to Fed- eral leasing, does it not? Mr. Si~rITII. Yes, very definitely. Senator ALLOTT. I know that you must have talked with the Bureau of Mines and Geological Survey many times, and I note that there is no one on the list of witnesses for these 2 days from either of those sources. Have they prepared anything or is there anything available and would it in your opinion be advantageous to us to hear from them about the economic significance and the amounts of minerals that might be procured through the exploitation of dawsonite and nah- colite? Mr. SMITH. Both the TJ~S. Geological Survey and Bureau of Mines have very competent people in the Denver area~ I think they are fully aware of the work we have been doing. We have cooperated with them, We have given them a lot of information, and I would think it would be helpful to have testimony from technical experts who have actually worked with the material. Senator A1L0TT. Well, I appreciate that because, after all, they are an arm of the Government and what they contribute might be of definite value. Thank you very much. Mr. SMITH. Thank you, sir. Senator Moss. The Senator from Idaho. Senator JORDAN. Mr. Smith, I want to compliment you on your statement. It adds materially to the background information that we need before this committee. Your company has been proceeding on a wide front, I take it. You mention your multiple minerals approach where you expect to isolate all of the separate minerals and recover them if it is economically feasible to recover them. This would assume going forward on reg- ular conventional mining practices, would it not, removing the ore and putting it through the various processes that are indicated by the minerals you expect to recover? Mr. SMITH. The program we have outlined uses techniques and processes that are well developed and well understood. We would expect to improve those as we go along, but we are trying to start off from known states of the art. Senator JORDAN. Yes. We would have to forgo some of the mul- tiple minerals approach if we went altogether to an ui situ approach in mining, would we not? Mr. SMITH. I think we would like to reserve opinion on that. As T mentioned in my testimony, we have some new thoughts on the sub- ject. It is possible that the Atomic Energy Commission program mio'ht be compatible with the work that we are doing. Senator JORDAN, I believe in your testimony you mentioned a fan- tastic sum, $100 billion, that might be needed to develop this resource. If this is true, before that kind of capital is made available, certainly the climate would have to be attractive enough and the leases, and so on, to know that you are going to get a fair return on that investment, would it not? PAGENO="0121" PEDERAL OIL SHALE PROGRAM 117 Mr. SMITH. No, sir. I am afraid I did not make myself clear. What I said was that there will be $100 billion new capital put into the worldwide oil industry in the next 10 years. Senator JORDAN. Yes. Mr. SMITH. I did not mean it would go into this project. In the normal course of events this is the magnitude of the capital investment that will be made by the industry worldwide. Senator JORDAN. In toto. Mr. SMITH. In toto, yes. The industry in the United States right now spends about $2 billion a year just drilling holes. What I am pointing out by this comment is that an enormous investment is going to be made in the industry. Now, which way it goes depends a good deal on Government policy. Senator JORDAN. All right. Then this leads to the question: What percent of that amount of capital might be induced to come into this area? Mr. SMITH. That is a very difficult question to answer. What we are saying is, it depends on how important the Government finds the need for a new domestic source of oil and aluminum. Senator JORDAN. And the terms of risk that might be- Mr. SMITH. Yes, sir. You see, Secretary Udall's statement was that there was not a need for a new domestic source of oil, He did not make a statement about aluminum. 1-Ic did not mention the need for aluminum at all. We think there is a fairly urgent need for a new domestic source of oil and we are sure there is for the basic com- ponents of aluminum. Senator JORDAN. Most of the witnesses who have testified agree with you and not with the Secretary. Mr. Si\UTJI. Yes, sir, I think so. Senator JORDAN. I have one other question. On page 16, and you do not need to refer to it, you said: "It is hoped also that we will be able to show that the high-energy consumption in producing alumi- num from bauxite will be reduced when the process commences with dawsonite~" In what way will commencing with dawsonite reduce the energy consumption in the production of aluminum? Mr. SMITH. I would like Mr. Nielsen to talk about that. Mr. NIELSEN. In dawsonite you would start out with the sodium alumina~e in solution and you would eliminate the step of roasting lime and soda ash and bauxite together to make the alumina avail- able. You would eliminate one manufacturing step. Senator JORDAN. The product dawsonite, then, is derived after the great amount of energy has already been applied to the other alumina, and so on. Mr. NIELSEN. That is correct. Senator JORDAN. Thank you. Senator Moss. The Senator from Wyoming. Senator HANSEN. Mr. Smith, let me say at the outset that I have been very impressed with your testimony before this committee and with the insight you have provided us. Your testimony not only touches on the national policy questions with which we should all be concerned but offers us some real alternatives for solving the mineral development dilemmas facing this country. PAGENO="0122" 118 FEIiERAL OIL SHALE PROGRAM I would just like to point out that I believe your remarks here before us represent some of the most concrete, thoughtful, responsi- ble and constructive responses that we have had during these hearings on oil shale development, and I want to thank you, Mr. Smith, at the outset for your contributions and the terrific innovations provided us by Mr. Nielsen. Mr. SMITH. Thank you. Senator HANSEN. Mr. Smith, there has been a good deal of discus- sion concerning the urgency of an oil shale and associated minerals development effort, but so far in these hearings, other than some men- tion of a 10- to 15-year Ieadtime requirement, we have not pinned down any facts relating to our future energy needs. I would like to refer to a short article in the Wall Street Journal of Monday, February 20, which summarized the results of a recent study made by Mr. John C. Lichtblau, research director of the Petroleum Industry Research Foundation, Inc. Mr. Lichtblau predicted that domestic production of crude oil and natural gas liquids would have to rise to 13,208,000 barrels daily by 1980 to maintain the share of the Nation's needs currently allocated domestic producers by the Federal Government mandatory import controls program. According to the Oil and Gas Journal, this compares with our 1966 output of 9,102,000 barrels a day. Using this as a base, Mr. Lichtblau said that to sustain the 1980 rate of output with the present level of 12-year supply at present rates, U.S. producers would have to find 97.2 billion barrels of new oil reserves in the 1965 through the 1980 period. This would represent a 51-percent increase from the 52.6 billion barrels found in the previous 15 years. Citing t:hese needs, Mr. Lichtblau forecast a growth rate for oil, however, of only 2.7 percent a year compared to an estimated 3 per- cent per year rise in total U.S. energy consumption. Most disturbing is the fact that he estimated that TT.S. wells will have a 21-percent reserve capacity of actual production rates in 1980, down from 75 percent at the present time. I cite these figures here because Mr. Lichtblau then goes on to say that his research indicates that oil shale would not make a measurable contribution to crude supply in the next 15 years. ~fhat statement, made in the face of such evidence which indicates a drastic decline in our domestic liquid reserves, is disturbing to me on its face. Would you care to comment on this recent detailed study, Mr. Smith? Mr. SMITH. I do not know Mr. Lichtblan and I am not familiar with the report. I think I should comment only on his prediction that oil shale will not produce anything for the next 15 years. On th~it T would say that Mr. Litchtblau appears to be a very pract 1- cal, realistic person. He is looking at the history of oil shale. On the basis of past performance and what has visibly been going on so far, I would think that his prediction is right. The only way some- thing is going to happen in the oil shale business is to have Congress, the executive department, and industry make up their minds whether they want it and go ahead with it. PAGENO="0123" I~'EDERAL OIL SHALE PROGRAM 119 Senator HANSEN. Yesterday this committee had the benefit of testi- mony by Secretary TJdall and Mr. Luce and Mr. Barry. Unfortunate- ly the Secretary's statement was not made available to the committee before he made his appearance, but now that we have had a chance to digest some of the Secretary's remarks I just wondered if you had any further comments on them. Mr. SMITH. Yes. I have a few points I could develop, although I have not had a chance to study the full transcript of his testimony. T noticed on page 4 of the document that he submitted he stated, "It appears that they"-being other minerals-"cannot be developed with- out disturbing or possibly damaging the shale." In our opinion the development of the other minerals cannot help but bring shale oil closer to a reality economically and we see no possibility of damage to shale. On page 5 the Secretary stated: The Director of the Bureau of Land Management has initiated action on penci- ing sodium lease applications to expedite decision whether leases should Issue. In our opinion the issuance of the sodium prospecting permits by Interior in April 1964 and the completion of all the legal requirements by the applicants obliges BLM to issue the leases. It cannot in good faith knowingly permit the work to proceed under the existing laws and in reliance on them for 2½ years and then change the rules. On page 7 of his prepared testimony he stated: We propose to open small areas * * * the most limited that will accommodate a prototype. This language appears to me to be designed specifically to dis- courage industry from going into the business. Also on page 7 of the statement: The development contract may ripen into a lease. I do not understand the word "ripen." Our company would not wish to engage in any contractual relationship with the Government that is not clearly defined and publicly approved in advance, prefer- ably on a standard form available equally to anyone else. This is the basis of our applications. On page 10 it is stated: Let us concede we are in no danger of a petroleum shortage. I think it is very difficult to reconcile this statement with the fact that Interior is considering "early and sharp increases in oil import quotas," according to the news reports today. I believe that this ques- tion whether we are facing a petroleum shortage should be looked at with the greatest of care. On page 12 it is stated: The question of tax treatment can be readily identified as a serious factor in determining shale's competitive standing. The question of tax treatment I believe could be resolved in no more than 90 days if the appropriate authority were asked to do it and got about the job. Finally, I think the Secretary stated in a section of his testimony that was not on his prepared paper: We can control and phase in the oil shale industry. PAGENO="0124" 120 ~1~TtAiA OIL SHALE I~ROGRAM I do not believe that this is possible unless the Government intends to control every aspect of the oil industry. The Secretary also expressed concern about protecting the resort and tourist facilities in the area. I am sure that many of you gentle- men are familiar with the Piceance area, but for those who are not I think it is safe to say that there have not been as many people in there this year as there are in this room, It is not a tourist and resort area. It is a rather desolated part of Colorado. So, much as we appreciate the consideration, we do not think it is a determining factor. I think those are the only comments I have. Thank you, sir. Senator HANSEN. Mr. Smith, as you know, this committee held in- formational hearings on oil shale in 1965. In order that we might have some continuity, would you care to comment on those hearings, that is, were there any assumptions made then which need revision now? I appreciate, I might add parenthetically, that we have had a multiple mineral development that was not discussed then. The Wolf Ridge Minerals, as you know, of course, had not yet awakened the world to the possibility of dawsonite, and in that context I ap- preciate it has changed. Do you have any further observations that you would care to make, sir? Mr. SMITH. At your hearings 2 years ago it was stated that the major issue was whether the Federal Government should open up its vast oil shale holdings to commercial leasing. I think it is dis- turbing that this question is still before us 2 years later. It was also suggested then that possibly the oil shale reserves should be held as an "ace in the hole." I feel very strongly that oil shale is not "money in the bank." Its relative value could decline. We cannot sit here and assume that this vast sum that people are continually talking about is going to be available in dollars 20 or 50 years from now. We have tried to stress here that this is a very competitive field, the energy field, and it is perfectly possible that oil shale will be outrun by some competitor that is going to be the result of technology that is coming up fast right now. The question was also asked at your hearing in 1965, "Should an early ruling on depletion allowances be sought ?" I believe there has been legislation proposed that will clear up the tax treatment of shale and again I feel it is regrettable that this legislation has not moved forward. I noticed yesterday even that the Solicitor of the Department of the Interior was not clear himself as to the meaning of the legislation that is presently before the Congress. That is all I have. Thank you, sir. Senator HANSEN. On the overall problem of a progressive oil shale development policy, I want to compliment the Senator from Colorado on the legislation he has submitted before this Congress. Would you care to comment on the depletion allowance he has already- Mr. SMITH. I believe that the legislation that is presently before the Senate and the House is adequate as far as commencement of an industry is concerned. Senator HANSEN. Just one final question. I know we are all concerned with development of these important resources, consistent with other values, and the protection of other PAGENO="0125" FEDERAL OIL SHALE PROGRAM 12]. values, and I think you have perhaps done some very unique work in going to different institutions of learning-I believe it was Cornell University-and working with other groups in seeing what can be done in the way of overall planning and development, anticipating the entrance of people into these areas. What will be required in the way of new cities and that sort of growth? Would you have just a word for us in that regard? Mr. SMITh. We are very fortunate to have several studies made of the impact of the population growth that would result from the begin- ning of a substantial industry in an area where there are now practi- cally no people. The Denver Research Institute made a careful study, in fact two studies, of the economic impact on the region of an oil shale industry. We then had Cornell University work up a master plan in various phases as to how the population and community would be handled. At the present time we have a regional planning organiza- tion supported by tax levy working on the whole program. We, of course, are very concerned with air pollution and water pol- lution. We are very concerned with the availability of water which has already been discussed here. It know it is not necessary to state to you gentlemen that water does not wait in the West. It is being taken up rapidly and put to use. We are very much concerned by the possi- bility that there simply will not be enough adjudicated water to do the million barrel a day job of 5 years or 10 or 15 years from now, to say nothing of the period beyond that. And I agree heartily with Mr. Russell Cameron, who stated that the 20,000 acre-foot figure that was given by the Secretary is not the key figure. We must go much higher than that because if you do not have enough water to support the whole system, enough water to support just one part of the process is not any good at all. Senator HANSEN. I know you have gone with unusual vigor into seeking out answers to the ramifications of oil shale development, an- ticipating problems, and It wish we had more time to explore your findings. I appreciate that we do not. I want to commend you for a very excellent statement, Mr. Smith. I think you made a big contri- bution. Mr. SMITH. Thank you, sir. Senator HANSEN. Thank you, Mr. Chairman. Senator Moss. Thank you, Mr. Smith, Mr. Nielsen, and Mr. Bowes. We do appreciate your coming. The statement was most helpful and reinforces some of the urgency for moving on in this field. The Senator from Colorado mentioned that we did not hear from the Bureau of Mines and the Geological Survey today. I should an- nounce that both Dr. Hibbard and Dr. Pecora were invited but are out of the city at this time, in California, so they could not appear. However, the committee certainly will invite them at a later date and certainly will hear from them. As the chairman announced, the record will be kept open at least until March 10 for any additional statements that anyone would like to file to amplify the record and clarify any of the points that have been discussed or bring in any new material. This is an exploratory hearing and we would welcome any additional statements. They will be printed at this point in the hearing record. (The statements referred to follow:) PAGENO="0126" 122 FEDERAL OIL SHALE PROGRAM STATEMEN~I OF ANGUS MCDONALD, DIRECTOR OF RESEARCH, NATIONAL FARMERS UNION Unfortunately, because of assignment in Wisconsin, I was unable to appear before this Committee on the date scheduled for the bearing. I am therefore sending a copy of this statement to each Member of the Committee with the hope that our views may receive some consideration. National Farmers Union, for many years, has been interested in resource development on public lands. We have appeared many times before many Con- gressional Committees urging that the public interest receive consideration when policy and action programs relating to the public lands were developed. The National Farmers Union has consistently urged that public land resources be developed or distributed to the end that the greatest possible number of our citizens would be benefitted. Our position in regard to the family farm Reclamation Law stems in large part from this policy position. We have urged this Committee over a long period of years to protect the 1902 Reclamation Law which provides that benefits from federally built dams be limited to that amount of water required to irrigate 160- acres per person, or 320-acres for a man and his wife. Unfortunately, adminis- tration of this law has been difficult and has seemed at times almost impossible to enforce. In our opinion, land-owners in California are illegally receiving vast amounts of water from Federal projects. We are aware that the Department of the Interior, in the Central Valley and in the Imperial Valley project in California, has taken cognizance of this situa- tion and has taken steps to penalize those who are illegally using water and to bring about better administration of the law Formulation of policy relating to the distribution of benefits from develop- nient of oil shale lands will no doubt encounter the same kind of obstacles ex- perienced in administering the Reclamation Act. Mining claims, according to the recent statement o1! the Secretary of the Interior, have not been filed with his Department and it is therefore impossible to ascertain the location and the number of mining claims which have been filed in the land records of counties throughout the West. We suggest that legislation is urgently needed and that these claims, some of them many years old, should be invalidated and that the Department be given authority to bring some order out of chaos in regard to the exploitation of minerals on public lands. There seems to be a great deal of confusion and misunderstanding, at least on our part, as to whether or not the Department can, under present law, put into effect the program which the Secretary outlined on January 27 of this year. According to various newspaper stories, oil and mining companies have deluged the Department of the Interior with a flood of new mining claims. Apparently this is an attempt to get in on the ground floor and preempt the right to develop oil shale. I call attention to a press release of the Bureau of Land Management, dated November 23, 1966 which, and I quote, says: "The Act of August 13, 1954, provides that rights to oil shale and certain other leaseable minerals are reserved to the United States both before and after a patent is issued to a mining claimant on public lands known to be valuable for any leaseable minerals. "To be valid, a mining claim must be on lands open to mining location, and there must be a discovery of a deposit of a valuable mineral subject to location under the U.S. mining laws. "The Bureau said reports growing out of the Colorado platinum activity that a claim located for metals carries rights to oil shale simply are not true." It would seem that if the Department is correct in this release, oil companies and others are going through a lot of lost motion in filing these claims. However, they may be depending on either Department of interior policy or the enact- ment of a Congressional statute to circumvent the 1954 law. Our attention has also been called to a combine consisting of 24 oil and mineral companies, which was formed to investigate the use of nuclear explosives in the recovery of oil from shale. It is reported that this group has met with representatives of the Atomic Energy Commission in an effort to set up a cooperative venture utilizing nuclear explosions to transform the oil shale into a liquid which could then be taken out of the ground. PAGENO="0127" FEDERAL OIL SHALE PROGRAM 123 Industrial and electric power companies have, over a period of many years, indirectly used funds appropriated for the Atomic Energy Commission for their own purposes. We recall that year after year representatives of these firms appeared before the Atomic Energy Committee urging the expenditure of vast funds while at the same time asserting that they required no subsidies. We hope that if a cooperative arrangement is worked out between the oil companies and the Atomic Energy Commission, that the taxpayer will not be required to carry the main burden of developing processes using fissionable material. Something should be said about the enormous value of the shale oil resources on public lands. According to The Oil and Gas Journal, it is estimated that shale oil is worth around $2'/2 trillion. Under existing law if shale oil develop- ment is turned over to private firms, the United States will realize only 10% of its value. Thirty-seven and one-half percent would be turned over to state governments and 521/2% to the Federal Reclamation Fund. We suggest that before anything is done in regard to the legalization of leases of oil companies that a statute should be enacted providing that the Government would obtain most of the benefits. The National Farmers Union has supported, as indicated, the Reclamation Law designed to benefit family farmers. However, we feel that money realized from the development of oil shale should not be turned over to the Reclamation Fund. We would prefer rather that it be set aside for purposes of education, rebuilding of cities, purification of the air and abatement of pollution in our streams. Here, perhaps, is a golden opportunity for the Administration to build the Great Society and resolve industrial, population and urban problems. We do not quite understand the need at this time for a crash program on shale oil, although we would have no objection to a relatively small development proj- ect which would pave the way for economical development later on. The record is replete with information to the effect that there is no great hurry. Present reserves in the United States are ample and the major oil companies are importing vast quantities of oil which has, over a long period of years, con- situted an economic threat to independent producers in the United States. Despite these facts, large companies are determined to obtain leases of large areas which would not be needed for many years. For example, it is reported that Shell Oil wants to lease 50,000 acres in an area estimated to contain 150 billion barrels of oil-enough to meet Shell's requirements for 660 years. Congress, some time ago, authorized a Public Land Law Review Commission, which is directed to study the shale oil problem and make recommendations to the Congress. While we might not agree with such recommendations, we sug- gest that Congress at least wait until the Commission makes its recommenda- tions which are not due until December 31, 1968. Any legislation except that which would protect the interest of the United States would be premature. Finally, we urge the Committee to disapprove legislation similar to that in troduced in the 89th Congress. Bills in the House call for a depletion allowance rate of 27'/2 % instead of the 15% depletion allowance which would be applied to the shale. In the Senate, legislation would permit only a $2.50 per acre pay- ment to the Government by companies leasing shale oil lands. This legislation would dwarf all previous giveaways ever heard of or even imagined. We urge this Committee to protect the interest of the citizens of the Nation in regard to oil shale lands. SINCLAIR OIL CORP. New York, N.Y., March 7, 1967. Hon. HENRY M. JACKSON, U.~9. ~9enate, Washington, D.C. DEAR SENATOR JACKSON: I am pleased indeed that you are taking such an active interest in the economic development of oil production from shale which would seem attainable within the next several years and being a nation whose economy is geared to oil we should give the freest range possible to private enterprise to develop shale production as it has so well developed our other natural re- sources. Sinclair has been extremely interested in this for many years, has spent several million dollars in research and field testing and we are currently very actively pursuing our studies. PAGENO="0128" 124 FEDERAL OIL SHALE PROGRAM In light of the recent new expression of impending action by the Secretary of the Interior we have again made our views known to him as we were pleased to make them known to the Senate Committee on Interior and Insular Affairs on February 21-22, 1967. I feel that our collaboration with the government has been fruitful in this respect and in this feeling we are proceeding to continue our cooperation. I am sending you this separate note just to let you know that this is not only a technical excercise with the Company but throughout our organization we are, all of us, vitally interested in the development of this production. Again, I am thankful that you are taking such a strong interest in this matter. Sincerely, E. L. STEINiGmi, Chairman of the Board. SINCLAIR OIL & GAS Co., Tulsa~, Okla., March 8, 1967. Hon. H. M. JACKSON, Chairman, Senate Committee on Interior and Insular Affairs, Old Senate Office Building, Washington, D.C. DEAR SENATOR JACKSON: Sinclair Oil & Gas Company, the exploration and pro- duction subsidiary of Sinclair Oil Corporation, submitted comments on the an- nounced Oil Shale Policy of the Department of the Interior to Secretary Udall on February 14, 1967. Our representatives attended the open hearing of the Senate Committee on Interior and Insular Affairs on February 21-22, 1967. We are pleased with the deep interest evidenced by members of the Senate iti future oil shale development. During your committee hearings, a number of points were raised on which we would like to base further comments. We understand that the record of this meeting is being held open for additional submittals of information and request that my letter to Mr. Udall of February 14 (copy attached) be included in the record of this committee meeting as representing the views of Sinclair on certain matters together with the following elaboration commenting on items raised during your hearings. 1. We strongly believe that there will be real need for a viable oil shale industry in the next decade to meet the needs of our domestic economy, to pro- vide for national emergency, and to prevent serious balance of payment prob- lems due to overdependence on foreign supplies of raw hydrocarbon materials. 2. A company can be expected to risk major research expenditures on oil shale only If assured that it will have a commercial land position as a result of such work. This assurance is not provided by the two-step award procedure implied by the Secretary's announcement. 3. We were pleased to hear a number of comments by Senators as well as by Secretary Udall indicating that the proposed program should recognize the serious research efforts of the several companies who have been striving to develop commercial methods of producing oil from oil shale. Sinclair has in- vested considerable sums in its own laboratories as well as through the Anvil Points research group to develop a commercial technique for producing shale oil by mining and retorting and has conducted expensive field experiments, inde- pendently, since 1953 to evaluate new methods of recovering shale oil with in-situ techniques. 4. In view of the extensive statements made at the Senate Hearing concern- ing recovery of Dawsonite as well as shale oil, we would like to advise that we have carried out joint research with the Aluminum Company of America for nearly a year. This work is currently in progress and is expected to continue for some time using actual core materials obtained from Sinclair properties. A potential process for alumina recovery has been conceived and is being evaluated. It is premature to expect any company to have conclusive results now as to the economics and processing of these deep, complex, and low-grade assemblages of minerals and hydrocarbons. However, the serious nature of our cooperative investigation illustrates the need to include provision for multiple company operation of both research and commercial leases. We shall look forward to attendance at future hearings by your committee. Sincerely, G. D. ALMEN Jr. PAGENO="0129" FEDERAL OIL SHALE PROGRAM 125 SINCLAIR OIL & GAS Co., Tulsa, olaa., February 14, 1967. Eon. STEWART L. UDALL, Secretary, Department of the Interior, Washington, D.U~ DEAR Mn. SECRETARY: Sinclair has been very i~ite~ested in the recent press releases and official statements of the Department of the Interior concerning the policy to be formulated on future disposition of government-owned oil shale lands in Colorado, Utah, and Wyoming and especially in the Piceance Basin. It appears that many of the proposed rules follow very closely the recommenda- tions made in Mr. J. B. Kennedy's November 24, 1964 letter to Mr. Joseph L Fisher of the Oil shale Advisory Board, a copy of which is attached for your ready reference. We would like to expand on Sinclair recommendations as they may pertain to the proposed policy and respectfully submit the following: 1. In order to encourage the very large-scale research investments needed to develop commercial production techniques, companies will need assurance that they will be awarded sufficient commercial reserves to make adequate profit on the overall investment. We recommend that, upon presentation of research plans, each company be granted the right to use a development tract for research and an option on a specified commercial tract of its selection. The option ~rould be exercisable by the commencement of operations on the commercial project. Time limitations on the option should be flexible enough to permit extension of serious research and development if needed. 2. If limitations should be established on the total amount of oil shale leases granted to one company, we recommend these take into consideration richness, thickness and process considerations instead of just surface acres. Some flexi- bility should be allowed to reward those companies who in the past have pursued and who in the future aggressively pursue oil shale research and production. 3. Raw shale oil is not a saleable commodity. It will require pour point reduction in order to be transportable through pipelines and hydrogenation in order to be used in a refinery. Large surface acreage will be needed for water storage, waste disposal, plant operation, etc. Therefore, we recommend that acreage be leased in one large block rather than a "checkerboard" approach of spreading out smaller amounts over a large area. The potential of acquiring larger blocks will do much to encourage research and production investment. 4. Our past research on underground retorting of oil shale and our current program in the Anvil Points cooperative research project lead us to believe that shale oil production will become economic in the foreseeable future. However, engineering and economic analyses made in connection with these projects indi- cate low potential return on investment. We are not in complete agreemet with the idea that the current nuclear approach to the problem can reduce costs radically, even if the process works. Since there is little technical promise of substantial Improvement in shale oil economics, we believe the government should be prepared to accept much smaller royalty rates than are used in con- ventional oil and gas leases and should encourage investment through an en- larged depletion allowance and investment tax credits. 5. In view of the dollar requirements of oil shale research and the risks involved, it may be necessary for several companies to pool their resources. We recommend that both the provisional development and the commercial leas- ing policy include provisions for joint operations through government-approved units. ~3. Water availability and waste disposal will be important factors in the development of the shale oil industry. We urge the government to take early steps to provide for the development of water resources sufficient for a com- mercial shale oil program. Government and industry should actively begin formulation of pollution and waste disposal regulations that will both protect the beauty of the lands and promote commercial production of shale oil. Dr. Rex T. Ellington has been appointed Oil Shale Project Manager for Sinclair. Please feel free to contact him for any assistance that we can provide in this important program. He can be contacted at the letterhead address of sinclair Oil & Gas Company. Respectfully submitted. G. D. ALMEN, Jr., Presid~' ~6-S21-~67-----9 PAGENO="0130" 126 FEDERAL OIL SHALE PROGRAM AMERICAN FEDERATION or LABOR ANb CONGRESS OF INDUSTRIAL ORGANIZATIONS, Washington D.C. March 9, 1967. Hon. HENRY M. JACKSON, Chairman, Committee on Interior and Insular Affairs, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: In connection with recent hearings by your Committee on development of oil shale resources on federally owned lands, I wish to present the views of the AFL-CIO. The AFL-CIO has long standing interest in development and protection of these reSources. Our position was reiterated in a 1965 AFL-CIO convention statement which declared: "We urge full protection of the enormous stake that all Americans hold in the oil shale deposits on federally owned lands. The federal government should rapidly enlarge its efforts to develop economically competitive techniques of processing liquid petroleum out of shale rock. It should build demonstration plants as yardsticks to private industry, performance and costs. Resumption of leasing on federal oil shale land should not be authorized without the strongest protection against private monopoly and speculatioi~." The oil shale resources lying under soine 5.1 million acres in the Green River Formation of Colorado, Utah, and Wyoming are of almost incalculable value- with estimates ranging from $300 billion to $2.5 trillion. Revenues to the federal government from an orderly leasing program at the proper time and under appropriate safeguards will be enormous. The importance of our shale oil reserves for this country's future energy requirements can scarcely be exaggerated. We believe these resources should be developed in such a way as to bring the broadest possible benefits to the public welfare, to strengthen the economy, to insure constructive competition, to prevent private monopoly over major natural resources, and to protect the affected environment. Therefore, we support proposals by the secretary of the Interior for a 10-year study of te~hr~o]ogical and environmental problems associated with development of oil shale resources. However, we strongly oppose proposals by the Secretary which would lead toward commercial leasing of shale oil lands before the major problems of public interest protection, technology, and conservation arc solved. We are particularly concerned about the dangers of monopoly in shale oil de- velopment, and therefore we oppose the Secretary's proposals: (1) To exchange private lands for public oil shale bearing lands in order to assemble `management blocks" for private development purposes; and (2) To open up small areas of federal oil shale lands to test development by private interests. We believe these proposals are contrary to the public interest l~ecause, as the Secretary himself admits, "the development contract may ripen into a lease for full scale production", and thus open the gates to private commercial leasing before public policy and safeguards are formulated and effective. We do not oppose development of our oil shale resources, but we insist on full and complete protection of the public interest with such restrictions and controls as may be ~necessary to prevent monopolistic exploitation which benefits a few giant oil companies. These goals cannot be achieved-and, indeed, will be defeated-if the major responsibility for shale oil development is turned over to private industry. Let me point out that there is nothing to stop the giants of the oil industry from developing extraction and processing methods for the oil shale lands they own privately already. There is no need to lure these companies into action with give-away open-door opportunities to lease or acquire federally owned oil shale lands. One other point I would like to make, Mr. Chairman, relates to the joint effort of the Interior Department and the Atomic Energy Commission to determine the feasibility of underground nuclear explosions to release shale oil. We believe the greatest possible safeguards must be adopted to prevent excessive release of radiation into the environment above and below ground and to prevent unantici- pated, dangerous underground environmental effects. Furthermore, we question PAGENO="0131" FEDERAL OIL SHALE PROGRAM 127 the need for private industry participation in this feasibility study, particularly when such participation by the CER Geonuclear Corporation is so thoroughly dominated by the nation's giant oil companies. Mr. Chairman, I respectfully request that this letter be included in the record of your Committee hearings on shale oil development. Sincerely, ANDREW T. BIEMILLER, Director, Department of Legislation, and Chairman, AFL-CIO Staff Com- mittee on Atomic Energy and Natural Resources. NEw Yonx, N.Y. February 20, 1967. STEWART FRENCH, ESQ., C1lsief Counsel, Committee on Interior and Insular Affairs, U.S. Senate, New Senate Office Building, Washington, D.C. DEAR MR. FRENCH: I refer to your letter of February 11 inviting us to furnish our views regarding the development of the oil shale deposits in the Western United States. I am much obliged to you for your invitation, and your request for additional comments regarding this subject. In view of our heavy development schedule in Colorado it is not possible to furnish you with completed data at this time. Of course, we will be ready and pleased to furnish concrete information regarding the development of the oil shale deposits in the Western United States at an early date. I have today instructed Mr. .John Stokes of Cleary, Gottlieb, Steen, and Hamil- ton and Mr. Lyle Youngstrom of Carl Boyir and Associates to attend the hear- ings as observers. Respectfully yours, H. I. KOOLSBERGEN, President the Oil Shale Corp. STATEMENT or ANTHONY MAZZOCCHI, CITIZENsHIP-LEGISLATIvE DIREcTOR. OIL, CHEMICAL AND ATOMIC WORHERS INTERNATIONAL UNION, AFL-CIO On behalf of an organization whose members have a personal stake in the production of petroleum, I wish to make several comments on the Secretary of Interior's recent recommendations on oil shale policy. 1. The oil $hale advisory committee shonld be continued.-We feel that gov- ernment, business, labor, and public representatives should be given an oppor- tunity to keep a constant eye on the development of public policy regarding oil shale. With over 80 percent of oil shale located under public land, it is vitally important that this trillion dollar resource not be left to a bureaucratic shuffle between government agencies and private oil companies. The American public has a right to know what is happening to oil shale. It was a mistake to let the oil shale advisory committee lapse. Congress should demand that the commit- tee be rejuvenated and strengthened by adding labor members who care about the safety and welfare of people who work in the oil industry. 2. Congress in quest of oil shale should not be stampeded into permitting un- derground atomic er'plosions which could violate the nuclear test ban treaty, harm underground water supplies and add to the radioactivity of the atmosphere. 3. Publicly-owned and operated yardstick oil shale plants should be eonsid- ered to protect the public interest-So the public will get the full benefit of oil. shale and its development will not be delayed by private combines, Congress should encourage TVA-type public yardstick operations which will keep oil shale prices down. This will enable the American people to enjoy the lowest possible price and the quickest possible availability on the American market. We realize that the full development of America's oil shale resources may be six to seven years off, assuming that everything is done to move full speed ahead with technical development schemes. The three points raised here are not the only points which concern us. We also believe that Congress must revise the oil royalties which permit only 12'/2 percent of the value to go to the government. In addition, it is totally unrealistic PAGENO="0132" 128 FEDERAL OIL SHALE PROGRAM to earmark 521/2 percent for reclamation, 37Y2 percent to the states, and 10 percent to the federal government. Oil workers are citizens who are victims of these excessively high tax privi- leges enjoyed by the commercial oil companies. We do not wish to see any of unfair fiscal advantages perpetuated as America's oil shale deposits are made available for the domestic market. EDMONDS, WASH., February 19, 1967. flon. HENRY M. rAcKsoN, U.S. Senate, Wa8hington, D.C. Mx DEAR SENATOR: Regarding the policy of the Department of the Interior toward oil shale, it appears to me that the least government is the best govern- ment. In the beginnings of our great country taxation was a very crucial mat- ter. Today taxation is an accej~ted fact of necessity, in addition to other forms of governmental income such as revenue from leasing of mineral lands. It has long been a conviction in my mind that the Department has had the intent for deriving revenue to first, justify its own operation. The all too apparent de- termination to retain as much of the mineral resources in Departmental owner- ship may be justified to the public as a necessity to control industry, but that is a debatable question for it is an abridgement of free trade. With "boards" to control the industry, why would not a tax on the product suffice for governmental revenue? The local taxing bodies would be glad to see the large acreages of federal lands entered on the county tax rolls. If the Department bad only jurisdiction over the industry and not a ve~ted interest through ownership there could be no Teapot Dome cloud ever again. It is my suggestion that any legislation to settle the question of the oil shale mining claims must spell out all the details of compliance for patent, or its ef- fectiveness and usefulness to the claimant will be lost in red tape as it has been over the last more than forty years. If a policy endeavors to retain oil supplies for future generations, then the simple solution is to let the 15% in private ownership and unpatented claims carry the ball, but deny the 85% in government ownership a leasehold. If my information is correct it is feasible now to produce oil from the 15%, and it would enable the private holdings to begin to realize on their investment with- out waiting a hundred or two years until the 85% in leaseholds is depleted. Very sincerely yours F. A. Mzsnnvz. Senator Moss. I might also announce that ahy of the witnesses who would care to do so may come here to the committee rooms tomorrow and be able to see their testimony as it was transcribed and do any ne.cessary editing where a witness might have misspoken or not been entirely clear in some of these exchanges of questions and observa- tions. We would appreciate it if any of you feel you would like to take advantage of that opportunity to see your testimony as it is transcribed. Tinder the order of the chairman, I now will declare these hearings adjourned subject to the call of the Chair. (Whereupon, at 12:55 p.m., the conimittee recessed, to reconvene subject to the call of the Chair.) PAGENO="0133" FEDERAL OIL SHALE PROGRAM THURSDAY, SEPTEMBER 14, 1967 ILS. SENATE, COMMITTEE ON INTERIOR AND INSUlAR AFFAIRS, Wa8hington, D.C. The committee met, pursuant to recess, at 10 a.m., in room 3110, New Senate Office Building, Senator Henry M. Jackson (chairman) presiding. Present: Senators Jackson, Moss, Allott, and Hansen. Also present: Jerry T. Verkler, Staff Director; Stewart French, Chief Counsel; William J. Van Ness, Special Counsel; and E. Lewis Reid, Minority Counsel. THE CHAIRMAN. The committee will come to order. This is a continuation of the public hearings begun last February by the Senate Committee on Interior and Insular Affairs on the Federal oil shale program. Late in January, prior to our February hearings, the Secretary of the Interior had announced a five-point program for development of the vast oil shale reserves on the federally owned lands. Then on May 10 he caused to be published in the Federal Regis- ter proposed regulations to implement the announced program, and invited comment by interested persons before they are put into effect. This resumed hearing will focus on these proposed regulations. Spe- cifically, the committee would like to get informed views and comment on the probable effect of the regulations on the development of the oil shale reserves of the public lands and their bearing upon the estab- lishment of an oil shale industry. It should be pointed out that today there is no oil shale industry in America. As yet not a single barrel of petroleum has been produced from oil shale on a commercial going-industry basis. However, there has been a considerable amount of experimental and exploratory work, as well as pilot plant activity by certain companies on private lands and by the Federal Government, itself, in the facility at Rifle, Cob. The Mideast crisis highlights the need for development of additional sources of energy within our country. The advancement of the state-of-the-art of producing oil from oil shale and the need for additional domestic supplies, make Secretary Udall's action in attempting to unlock the vast energy resource of oil shale particularly timely and fortunate. Secretary Udall is to be congratulated most heartily for his in- itiative and in view of the reaction of some people, perhaps his dar- ing. He is the first Secretary of the Interior in the 37 years since President Hoover's order in 1930 withdrawing the oil shale deposits on the public lands to attempt to take affirmative action on a signifi- 129 PAGENO="0134" 130 FEDERAL OIL SHALE PROGRAM cant scale. And his plan is in our historic tradition of development through private enterprise. Without objection, I will direct that the text of the proposed regu- lations and the announcement of their publication be set forth at this point in the record of these hearings. (The documents referred to follow:) [From the U.S. Department of the Interior, Office of the Secretary, May 7, 1967) PROPOSED REGULATIONS To GOVERN OIL SHALE LEASING AND LAND EXCHANGES ANNOUNCED Regulations which would permit a limited area of oil shale lands to be leased for research and development, and others to be exchanged, under conditions designed to protect the public interest are being proposed by the Department of the Interior. "We sincerely hope that these proposed regulations, being published in the Federal Register, will receive the widest possible range of comment from the general public, members of Congress, industry, the scientific and educa- tional community and the three States most directly involved," Secretary of the Interior Stewart L. Udall said. He promised careful consideration of all comments before any rules are officially adopted. The proposed leasing rules were drafted under authority of the Mineral Leasing Act to implement Point 3 of a five-point overall program announced by lJdall January 27 to promote the recovery of shale oil and associated miner- als from the rich Green River Formation in Colorado, Wyoming and Utah. Most of this land is Federally owned, and administered by the Interior De- partment's Bureau of Land Management. The third point of the comprehensive program calls for procedures to permit the Interior Department to consider applications for provisional development leases of oil shale lands. In testimony before a committee of the Senate recently, Udall described this point a~ "at once the most difficult and most crucial, since it involves the first experimental and limited steps toward opening the shale reserves to actual development." Known oil shales in the three States are estimated to contain the equivalent of approximately 70 times the nation's proved reserves of crude petroleum. In some locations they are intermingled with substantial quantities of minerals containing sodium and sodium-aluminum compounds. No more than 30,000 acres in all would be involved in the leasing program under the newly proposed rules. About 11 million acres are classified as containing oil shale land in the three States. About 5.1 million of these acres-some 3.7 million of them Federally owned-contain "15-45" shales-that is, shales at least 15 feet thick which would yield at least 15 gallons of oil per ton. The richest shales are believed to be in the Piceance Creek Basin of Colorado, where some 770,000 acres contain 25-gallon-per-ton shale in thicknesses of 15 feet or more. About three-fourths, or 580,000 acres, are Federally owned. Thus, 30,000 acres would represent only slightly more than 5 percent of the federally owned shale lands in this area. However, areas to be designated for leasing will be selected by the Department in order to encourage research on a variety of shale conditions, and will not be limited to the richest areas. Development leases, the Secretary emphasized, would involve two distinct phases. The first phase-limited to 10 years-would require the contractor to expend research and development funds on relatively small acreages. The aim of the Department would be to encourage a variety of approaches leading to a tech- nology which could support a broadly based competitive leasing program, the Secretary said. The second phase, reached only when the Secretary finds research work has proved successful, would make available to the lessees acreages large enough to sustain a commercial operation of specified capacity for as long as mineral products are produced in paying quantities. However, under the terms of the Mineral Leasing Act of 1920, no lease may exceed 5,120 acres, and not more than one lease may be granted to any one person, association or corporation. Lea sea all would expire at the end of their research periods unless the Sec- retary of the Interior authorized commencement of the commercial production term. PAGENO="0135" FEDERAL OIL SHALE PROGRAM 131 Private citizens, associations, corporations or municipalities would be eligi- ble to make proposals for leases. Evaluation of their proposals, after "consul- tation with appropriate Federal, state and local agencies," would be based on a number of specified factors. Among these would be prospects of attaining com- mercial feasibility of a variety of mining and processing methods, under varying conditions; enhancing chances to make maximum recovery of other minerals invilved; improving the competitive opportunities for smaller companies; and limiting potential hazards to the environment and to human safety. Other fac- tors would be the applicant's financial and technical capabilities; his need for leased lands to do the work; the pace of his proposed research and development; the likely effects on competition; etc. Applicants must disclose their interests in other oil shale lands, and state their need for a lease, the financial and technical capability, their plan of work, including research goals, and the nature, location and cost of ulants and equip- ment they would install. They would have to specify the number of "key persons" to be employed, and the qualifications. Also required will be a schedule of pro- posed expenditures, and the techniques to be studied. Additional information to be provided will include a description of steps to be taken to avoid or minimize possible adverse effects on the environment, the applicant's water needs and source of supply, the measures to prevent waste `of mineral resources, and plans for a commercial operation if the research succeeds, There would be a minimum royalty to the Federal Government of 3 percent of the gross value of the mineral products from the oil shale at the point of ship- ment to market, with a graduated scale of royalties ranging up to 50 percent of the net income from the property. "The purpose of the sliding scale of royal- ties is to encourage new ventures in oil shale development, while protecting against the possibility of windfall profits," Secretary Udall said~ Royalties would be subject to readjustment every 20 years as required by the 1920 Mineral Leaa. ing Act. The lessee would be required to submit annual progress reports on all work ac- complished and results achieved during the research period. The information will be promptly made available to the public. The right to use inventions made during or under the research term of the lease will be available to the public without charge in accordance with, and subject to the limited exceptions of, the President's Statement of Government Patent Policy of Oct. 10, 1963. In addition, the lessee would be required to issue licenses at reasonable royalties, permitting use of patents be may own which are necessary to permit others to use inventions resulting from the research. Before approval, leases would be submitted to the Attorney General for ad- vice on their consistency with the objectives of the Federal antitrust laws. The Department announced that proposed regulations to govern exchanges of oil shale lands, also are being published in the Federal Register. This would implement Point 2 of the five-point shale program, permitting exchanges of scattered holdings of private lands in the region for Federal land of similar qualities. This will permit consolidation of private holdings for emcient mining operations. Lands offered to the Department for exchange would have to have a value at least equal to the value `of `the selected public lands. All exchange proposals would be advertised in local newspapers in order that others who wish may also apply for the selected public lands within 60 days. U.S. DEPARTMENT OF THE IxTEluon, BUREAU OF LAND MAGEMENT, WASHINGTON [43 CFR, PART 3170] OIL SHALE Basis and P1,4~rpose. Notice is hereby given that the Department of the Inter- ior proposes to amend the regulations regarding the leasing of oil shale lands, found at Part 3170 of Title 43 of the Code of Federal Regulations, by revoking those regulations and substituting the proposed regulations set forth below Interested persons are invited to submit their comments in writing to the Director, Bureau of Land Management, Department of the Interior, Washington, D.C. 20240, within thirty days of the date of publication in the Federa' Register of this notice. Persons wishing to present their views orally are requested to com- municate with the Director, Bureau of Land Management. PAGENO="0136" 132 FEDERAL OIL SHALE PROGRAM Part 3170 is amended to read as follows: PAnT 3170-OIL SHAlE Subpart 3170-Oil Shale: General 3170.0-i Purpose. 31-70.0-3 Authority. 3i70.O-~5 Definition of term "Oil Shale". 3170.1 Designation of Available Lands. Subpart .3171--~-Applications for Leases 3171.1 QualifIcations of Applicants. 3171.2 Form and Contents of Applications. 3171.3 Considera~tions to be used in Evaluating Applications. 3171.4 Time for Filing. Subpart 3172-Miscelkeneous Provisions 3172.1 Form of Lease. 3172.2 Term of Lease. 3172.3 Acreage Designations and Limitations. 3172.4- Rentals. 3172.5 Royalties. 3i72.~l Termination of Lease. 31-72.7 Lease Bond. 3172.9 Other Provisions. 3172.10 Antitrust Consultation. - SUBPART 3170-OIL sHALE: GENSEAL § 3170.0-1 Purpose. These regulations govern the availability for leasing of a limited acreage ot oil shale lands under the jurisdiction of the Department of the Interior. The objectives are to: Foster improved technology for the mining and recovery of shale oil and other mineral components of oil shale; Encourage competition in development and use of oil shale and relatedl mineral resources and develop a basis for subsequent competitive leasing of Federal oil shale lands; Encourage participation by companies not favorably situated with respect to access to reserves of the minerals present in oil shale; Prevent speculation and windfall profits; Provide reasonable revenues to the Federal and State Governments; under mining operation and production practices that are consistent with good conservation management of overall resources, in the rogion. § 3170.0'-3 Ant k~ortty. These regulations are issued pursuant to the Mineral Leasing Act of February 25, 1920 (41 Stat. 445), as amended, (30 U.S.C. 181-287). § 3170.0-5 -Deftnxition of Term "Oil $ha1~l." As used herein, the term "oil shale" means sedimentary rock containing organic matter which yields substantial amounts of oil or gaseous products by destructive distillation. The term includes all the minerals which are components of the rock, but does not include: (a) deposits of niinerals which may -be interbedded in the sedimentary rock / series and which the Secretary determines can be mined (i) without removal of significant amounts of organic matter and (-ii) without significant damage to oil shale beds; and (b) deposits subject to lease as oil -and gas, asphaltic minerals, or- coal. § 3170.1 Designation ol Available Lands. The Secretary will from time to- time publish notices in the Federal Register designating areas of oil shale bearing lands and deposits fo-r the conduct of particular types of mining, extraction, or processing activities which will be made available for leases for research and development and for subsequent commercial operations in accordance with these regulations. Areas will be s-elected with a view to encouraging research on a variety of mining and processing metboda under a variety of conditions of mineral depths, composition, thicknesses and qualities, and taking into consideration sound principles of conservation and environmental protection. A total of nO more than 30,000 acres- of oil shale bearing lands will be designated hereunder. Oil shale bearing lands, the surface of which is under the administrative jurisdiction of a Federal agency other than- the De~ partment of the Interior, will not be designated hereunder. PAGENO="0137" FEDERAL OIL SHALE PROGRAM 133 SUBPART 3171-APPLICATIONS FOR LEASES ~ 3171.1 Qualifications of Applicants. (a) Leases may be issued to: (1) Citizens of the United States; (2) Associations of such citizens; (3) Corporations organized under the laws of the United States, or any State or Territory thereof; (4) Municipalities. (b) The term "associations" includes partnerships, syndicates, groups, pools, joint ventures and other unincorporated organizations. ~ 3171.2 Forn~ and Contents of Applications. (a) No form of application is prescribed. (b) Applications should be in writing and filed in triplicate in the Office of the Director, Bureau of Land Management, Interior Building, Washington, D.C. .20240, notwithstanding the provisions of section 3001.0-6 of this chapter. (c) The application should provide: (1) The complete name(s) and address (es) of the applicant(s). (2) The qualifications of applicant(s) to hold a lease under the Act. (3) A description of the land for which a lease is desired. (4) A detailed statement of any direct or indirect interest which the applicant then has in any lease issued or applications pending hereunder, including ownership interests in any holder of a lease issued hereunder. (5) If the applicant is a corporation, the name and address of each stock- holder of record holding more than 10 percent of the corporation's stock. (6) If the applicant is an association, the name and address of each mem- ber who has an interest of more than 10 percent in the association. (7) A statement of the applicant's interests in non-federally owned oil shale lands and the reasons why the applicant needs federally leased land for the proposed research and development. The statement should include a description of the location and acreage of such lands, and the best available information on the depth, quantity, composition, quality and thickness of mineral deposits present in such land. (8) A detailed statement of the applicant's financial capability to conduct the proposed research and development. (9) A detailed statement of the applicant's technical capability to conduct the proposed research and development. (10 A description of the applicant's plan of research and development during the research term, specifying: [1] The goals of the research plan; [2] The nature, location and cost of plants and equipment to be utilized; [3] The number of key persons to be employed and their qualifications; [4] The schedule of expenditures; j5] The mining and processing techniques to be studied; [6] The possible adverse effects on the environment and the measures to be taken to avoid or minimize such effects; 17] The acreage required for the research; [8] The depth, quantity, composition, quality and thickness of shale deposits required for the research; [9] The quantity of water required and the expected source; [10] The measures to be taken to prevent waste of the mineral re- sources of the leased land. (11) A description of the reserves the applicant then owns or controls of oil and other minerals of the kind believed to be present in the lands applied for. (12) With respect to the commercial operation sought to be developed if the research plan is successful: [1] The general nature of the commercial operation, the coinmod- ity (ies) product (s) expected to be produced, and the approximate Serv- ice life and capacity of the plant to be constructed. [2] The expected annual unit and dollar value of production of each mineral product to be produced. If the proposed commercial operation does not include extraction of component mineral products from the oil shale, a description of the prospective market. PAGENO="0138" 134 FEDERAL OIL SHALE PROGRAM [3] The expected capital and annual operating costs, [4] The quantity of water required and the expected source. [5] The expected hazards to the environment and the measures pro- posed to avoid or minimize them. [6] The quantity of land and the depth, quantity, composition, quality and thickness of mineral deposits required. § 3171.3 Considerations to be used `in Evaluating Applications. After consultation with appropriate Federal, state axid local agencies. evalua- tion of the research and development proposals will be made on the basis of the following considerations: (a) Selection of proposals showing greatest promise of: (1) Ascertaining the commercial feasibility of a variety of mining and processing methods, under a variety of conditions; (2) Enhancing opportunities for maximizing multiple mineral recovery; (3) Enhancing the competitive opportunities of smaller companies; (4) Limiting any potential hazards to the environment; (5) Limiting any potential hazards to human safety. (b) The financial and technical capabilities of the applicant to conduct the proposed research and development, and the projected commercial operation. (c) The pace at which the research and development is proposed to be conducted. (d) The applicant's need for leased lands to conduct the proposed research and development, and the projected commercial operation. (e) The effects on competition of the proposed research and development and the projected commercial operation. (f) The applicant's need for reserves of the minerals proposed to be produced under his proposal. § 3171.4 Time for Filing. No application will be accepted if filed later than five years from the date of publication of these regulations in the Federal Register. [The exact date will be inserted when the final regulations are published.] SUBPART 81 72-MISCELLANEOUS PROVISIONS § 3172.1 Form of Lease. No form of lease is prescribed. § 3172.2 Term of Lease. (a) Research Term. The research term of any lease issued under these regula- tions shall be designated by the Secretary, but in no event may exceed 10 years. (b) Commercial Production Term. The Secretary will extend the term of such lease upon completion of the research term to permit commercial production for so long as mineral products are produced, from oil shale in paying quantities from deposits on the land, if he has determined that: (1) The lessee conducted research activity during the research term sub- stantially in accordance with the plan submitted in his application, or any modification thereof which was approved by the Secretary. (2) The lessee has, in the course of the research term, developed a mining and processing method, which: [1] Is commercially feasible: [2] Provides for optimum recovery of minerals to be produced; [3] Can comply with requirements determined by the Secretary to be necessary to prevent or minimize pollution of air and water, scenic or esthetic damage to surface resources, to fish and wildlife, and hazards to human safety. (3) The lessee has complied with all the terms of the lease. § 3172.3 Acreage Designations and Limitations. (a) No lease issued hereunder may exceed 5,120 acres. (b) Upon the issuance of any lease hereunder the Secretary shall designate the part of the leased lands upon which the lessee will be permitted to conduct operations during the research term. (c) At the time for the grant of any extension of the term of lease as provided in section 3172.2(b), the Secretary will determine the quantity of mineral de- posits needed for commercial production, allowing reasonable reserves. The PAGENO="0139" FEDERAL OIL SHALE PROGRAM 135 term will be extended only with respect to the area which contains the quantity of mineral deposits so determined. (d) No person, association, or corporation (including a municipality) may take, hold, own or control an interest in more than the total maximum acreage of land included in any lease hereunder, except insofar as natural persons are permitted to hold greater interests under 30 TJ.S.O. sec. 184(e), by virtue of their 10 percent or lesser interests in corporations or associations holding leases here~ under. § 31.72.4 Rentals. Leases shall provide for the payment, in advance, of an annual rental of ~0 cents for each acre or fraction thereof. § 3172.5 Royalties. (a) Leases shall provide for the payment of royalties on production during their comercial production terms. (b) The royalty rate on production shall be 3 percent on the gross value, at the point of shipment to market, of the mineral products from the oil shale, except as provided in subsections (c) and (d) of this section. Such royalties shall be due and payable monthly on the last day of the calendar month next following the calendar month in which produced. (c) If the total annual royalty payment on production as computed in ac- cordance with subsection (b) of this section is less than the payment would be if computed in accordance with subsection (d), then the lessee shall pay, by March 1 of the succeeding year, an additional amount equal to the difference between the royalty paid and the royalty as computed in accordance with subsection (d). (d) The annual net inconie royalty rate shall be a percentage of net income from the production of mineral products from oil shale to the point of shipment to market. The net annual income royalties rate is: Ten (10) percent of that part of the net income which is no more than ten percent of investment. Thirty (30) percent of that part of the net income which exceeds ten percent and is no more than twenty percent of investment. Fifty (50) percent of that part of the net income which is more than twenty percent of investment. As used in this section, "net income" means taxable income, computed without allowance for royalty and depletion. "Investment" means the original cost less depreciation of capital assets used in the aforesaid production and processing of oil shale. The term "investment" does not include oil shale obtained pursuant to a lease issued hereunder. (e) Lease royalties shall be subject to readjustment at 20-year periods suc- ceeding the issuance of the lease. Lessees will be notified of the proposed re- adjustment of royalties or notified that no adjustment is to be made. Unless the lessee shall file either a notice of objection and offer to negotiate the proposed readjustment of royalties, or file a relinquishment of the lease within 30 days after receipt of the notice, he will be deemed to have agreed to such readjusted royalties. (f) The Secretary will, prior to any readjustment under subsection (e) of this section which would reduce the rate of royalty on any lease, publish a notice of intention to make such reduction in the Federal Register, inviting written comments by interested persons, to be filed within 60 days of the issu- ance of the notice. The Secretary will not readjust such royalties prior to the expiration of such 60-day period. (g) Leases shall provide for the payment of royalties during their research terms, on minerals and mineral products sold by the lessee. The royalty rates shall be the same as those applicable during the commercial term. § 3172.6 ~Permination of Lease. Each lease issued hereunder shall terminate at the end of its research term unless, prior thereto, the Secretary has authorized the commencement of the commercial production term. § 3172.7 Lease Bond. A bond of not less than $100,000, conditioned on performance of the obliga- tions imposed by the lease, the Act, and these regulations will be required prior PAGENO="0140" 136 FEDERAL OIL SHALE PROGRAM to the issuance of an oil shale lease. The right Is reserved at any time before or after the issuance of the lease to require an Increase of the amount of the bond In any case where the Secretary deems it proper to do so. § 8172.9 Other Provisions. (a) Protection of the linvironment and Human Safety. The lease will contain such provisions as the Secretary deems necessary to prevent or minimize pol- lution of air and water, scenic or esthetic damage, damage to surface reSQurces, and to fish and wildlife and hazards to human safety. (b) Prevention of Damage to Other Mineral Resources. The lease will con- tain such provisions as the Secretary determines necessary to protect other mineral resources which may be involved. (c) Diligence in Pursuit of Plan of Research. The lease will require that the lessee pursue diligently both the plan of research upon which his lease was issued and operations during the commercial production phase. (d) Disclosure of Information Developed During the Research Term. (1) The lease will contain provisions requiring the lessee: [1] To submit annual progress reports during the research period, in sufficient detail to disclose fully all work accomplished and results achieved. [2] To submit, within 120 days after completion of all work under the research plan, a final report summarizing the state of the art and covering conclusions and recommendaions derived therefrom. The report shall in- clude a complete and detailed disclosure of all materials, processes, and equipment involved, including all `the technical and financial data needed to enaible any qualified person to carry out the Work performed under the lease. Where appropriate, the recommendations shall include proposals for further improvements which would advance the future `state of the art based on knowledge acquired in the performance of the work under the lease. [3] To make such other reports' and supply such information regard- ing the progress of the research as the Secretary may specify from time to time. [4] To permit access, by persons designated by the Secretary, to the leased premises, all facilities thereon, all other facilities in which any part of the research is conducted, and all books and records which di- rectly relate to the plan of research being conducted. (2) The lease Will provide that no report required under the lease may be copyrighted and the lessee, without additional compensation, therein grants to the Secretary the full right to publish, reproduce and use, and have others do so, for any purpose without limitations, the reports and any infor- ination obtained by the Secretary hereunder. The Secretary will promptly publish the reports received and make the other information he has obtained available to the public. (3) The lease will require that the lessee agree not to publish, or to make available to others besides representatives of the Secretary, the results of the research work under the lease or any information concerning the same, without prior approval in writing from the Secretary. (e) Patents. The lease will contain provisions that the United States Will acquire title to all inventions made in the course of or under the research term of the lease, and requiring the lessee to issue licenses at reasonable royalty rates, with respect to such patents as he may own, which are necessary to permit others to practice inventions made in the course of or under the research term of the lease, except that the lease may contain provisions granting greater patent rights to the lessee, in such cases where a proper showing of exceptional circum- stances is made, in accordance with the Statement of Government Patent Policy issued by President Kennedy on October 10, 1963, 28 P.R. 10043. (f) Assignments and Relinquishments. The lease will contain provisions gov- erning assignments and relinquishment's. (g) Cancellation of Leases. Upon failure of a lessee to comply with the provisions of the Mineral Leasing Act, or of the regulations issued thereunder, or of the lease, and continuation of such default for 30 days after service of written notice thereof by the Secretary, the Secretary may institute judicial proceedings for the cancellation of the lease as provided in section 31 of the Act. Failure to give notice with respect to any particular cause of forfeiture PAGENO="0141" FEDERAL OIL SHALE PROGRAM 137 shall not be deemed a waiver and shall not prevent the cancellation and forfeiture of the lease for any other cause of forfeiture, or for the same cause occurring at another time. (h) Additional Provisions. The lease will cont~1n such additional provisions as the Secretary deems appropriate. § 3172.10 A~titru~t Consultation. Prior to the issuance of a lease, the Secretary will forward a copy to the Attorney General, requesting his advice as to whether the issuance of the lease would be consistent with the objectives of the Federal antitrust laws. STEWART L. UDALL, Becretary of the' Interior. The CHAIRMAN. The committee requested the Secretary to make available copies of the pertinent comments he has received on the regu- lations. I will direct that these comments, or extracts from them, be printed a;s an appendix to the verbal presentations that will be made. Many of these comments are critical of the Secretary's regulations. It is, of course, anyone's right, and privilege, to disagree with them. This is the whole purpose, I may say, of the hearings that we are hold- ing. However, I would point out again, that the Secretary has tried, at least, to do something to bring about development of a great, and ob- viously controversial natural resource. I already have stated that the primary purpose of these resumed hearings is for the committee to obtain enlightenment on the probable effect of the regulations on the development of the publicly owned oil shale deposits and on the development of an oil shale industry. Also, the chairman must point out that the troublesome a;nd highly complex legal question of the validity or invalidity of mining claims located for oil shale under the mining laws before enactment of the Mineral Leasing Act of 1920 is now `before the courts where it belongs at least at this stage. This committee, of course, is not the proper forum to argue the mining claims issue and make a judicial decision. Anyone, however, who wants to make recommendations regarding legislation, raises a different issue. But the purely judicial problems that are now pending in the courts must be left to the courts to decide, and it would be inappropriate and improper for this committee to intervene in those judicial proceedings. We have a long list of witnesses who have asked to be heard. There- fore, we plan to hold the hearings all day today, and will continue tomorrow. The first witness this morning is the Honorable Wallace Bennett, senior Senator from Utah. Before calling ~n him, I shall ask my colleagues if they have any comments or statements they wish to make before hearing the first witness. Senator ALLOT? Senator ALLOT. Yes, Mr. Chairman, immediately following the state- ment by Senator Bennett, I would like to insert in the record for my colleague, Senator Dominick, a statement, and immediately following that a joint letter by the GovernoTs of Colorado, Utah, and Wyoming, commenting upon the regulations. The CHAIRMAN. Without objection, the statements and letters will be included at that point in the record. Senator Moss? Senator Moss. Thank you, Mr. Chairman. PAGENO="0142" 138 FEDERAL OIL SHALE PROGRAM The only comment I have to make is to echo the remarks by our chairman when he spoke of the necessity of moving forward in this field. I, too, commend the Secretary for taking some action in getting things moving. Obviously, there is a great difference of opinion on the proposed regulations and that is what we are to hear today and to make the record so that the committee may make some decisions as to what ought to be done. I have some reservations on certain aspects of the proposed regula- tions so I am going to listen carefully to the witnesses hoping that we can find a way to develop this great resource and make it useful and do it in a way that is in the public interest of all of the people of the country. The CHAIRMAN. Thank you, Senator Moss. Senator Hansen? Senator HANSEN. Thank you, Mr. Chairman. As soon as it can be arranged, I would hope that we might be able to hear from Congress- man Harrison. I know he is extremely busy, as are all the Members of the Congress. The CHAIRMAN. He will be heard right after Senator Bennett. Senator HANSEN. Very good. I would like, also, to insert in the record correspondence we have received that I think will be helpful in compiling a record and provide a better appreciation of the problems that confront the Government in determining how best to develop this resource. May I also say that I echo the sentiments the chairman expressed, that it should be noted that, as yet, not one single barrel of oil has been produced from this tremendous energy reserve resource that we have. I compliment the Secretary for the efforts he has made to see that it be developed in the tradition of our free enterprise economy. I have nothing further, Mr. Chairman. The CHAIRMAN. Thank you, Senator Hansen. In order not to inter- rupt the oral statements at this point, we will make an appendix of the letters you have submitted. (The material referred to begins on p. 487.) The CHAIRMAN. Senator Allott? Senator ALLOTT. Mr. Chairman, I would also like to request that at the conclusion, of the Secretary's statement, and any questions that may occur, a statement from the Rocky Mountain Oil & Gas Association by Mr. Collis P. Chandler, Jr., be inserted in the record. The CHAIRMAN. Without objection, it will be included in connection with the previous request made by the senior Senator from Colorado. The Chair wishes to state again that the Chair is approaching this matter with an open mind. This is inde~d a very complex problem. We are dealing with the disposition of one of the greatest known resources this country has ever possessed. Obviously whatever action is ul- timately taken must be guided by the overriding public interest to see that the assets of the United States are properly protected and, at the same time, provide for the development of this resource. I think the fact that this resource is such a tremendous asset and inv6lves such a large sum of money, does not mean that we ought to delay action. It seems to me that this matter has been delayed for a long, long time, and that now is the time to make some decision as to PAGENO="0143" FEDERAL OIL SHALE PROGRAM 139 how we should proceed with development and at the same time prop- erly protect, as we must, the assets of the United States. Senator Bennett? STATEMENT OP HON. WALLACE BENNETT, A U.S. SENATOR PROM THE STATE OP UTAH Senator BENNETT. Mr. Chairman, I appreciate the opportunity to appear here today, and I particularly appreciate the privilege you have given me to appear first. On the floor of the Senate they are discussing a flood insurance bill which came out of the Banking Committee and I have responsibility with respect to that bill. So I am glad I can appear now and get my statement in the record earlier. Estimates of oil shale deposits in the United States stretch from 600 billion barrels of oil equivalent for shale yielding 25 gallons per ton to as high as 2 trillion barrels if low quality shale yielding 10 gal- lons per ton is included. According to Secretary TJdall, approximately 80 percent of the reserves are federally owned and 20 percent privately owned. For the most part private holdings are in isolated pockets or thin strips of low yield shale. We have the opportunity to develop this new domestic industry in an orderly way through the cooperation of State and local govern- ments, private industry, and the Federal Government. It does us no good to talk of this resource in terms of billions of bar- rels of oil or trillions of dollars as long as the resource remains unde- veloped in the ground. I feel that the Department of the Interior should modify the pro- posed leasing regulations so that a healthy, comprehensive and ul- timately profitable private industry can be developed on the public oil shale lands. The regulations as written will not, in my opinion, achieve that objective. I believe the objective can best be achieved by strengthening private industry's role in developing the oil shale potential of Utah, Colorado, and Wyoming. I am sure no one is surprised that I would take this point of view. I do not believe Government can match the efficiency and economy which are the natural results of industrial competition. In line with the opinion of other westerners involved in this prob- lem, and while officially I have not seen `the statement of the three Governors, I understand that my statement is in line and gives sup- port to theirs, I would suggest that the proposals be changed as follows: 1. Open lands to competitive bidding in blocks up to 5,120 acres using tested competitive bidding procedures, now used for other leasable minerals under the Federal Mineral Leasing Act. The Interior Department's concept of "negotiated leases" based on the need of an applicant for oil shale reserves, would inevitably develop charges of favoritism and special interest, no matter how hard attempts were made to avoid' this. 2. Provide a fixed royalty rate like that used for oil and gas or other leasable minerals which would include a provision for periodic re- negotiation after production starts. PAGENO="0144" 140 FEDERAL OIL SHALE PROGRAM 3. Lease terms should be fixed for at least 10 years subject to exten- sion by production. Due to the present state of oil shale technology, less than 10 years is probably impractical. 4. Initiate an immediate rental program that will produce revenue under the Mineral Leasing Act. The failure of the Federal Govern- ment to realize any rentals is hard to understand. Even if no royalties materialize, rentals could be substantial. 5. Provide for increasing rentals or accelerating advance royalties during the lease term so that speculative nonproductive holding would be made uneconomic, and this would give to legitimate producers the opportunity to offset such penalizing expenses by obtaining successful production. 6. Discard research and development leases as the only immediate method of getting leases on Federal lands. 7. Eliminate the "net profits" approach to charging users which is repressive and would discourage commercial production. 8. Provide incentives for achievement, including elimination of the requirement that oil shale technology inventions be made available to the public without charge. It is basically unsound, under the philoso- phy of our private economic system, to require that a lessee make public all the knowledge, and give up title to any patents, resulting from his research on public lands. I consider the regulations relating to patents and disclosures a negation of our patent system, which is in large measure responsible for the scientific and industrial progress of our country. As a reward for innovation, and for disclosing the~ nature of his invention to others by publication of a patent, the in- ventor has traditionally been given a limited monopoly for 17 years on its use. Requiring that patents be assigned to the Federal Govern- ment and that all results of research be made public immediately will remove the most powerful competitive force that can be brought into oil shale development. 9. Allow State and Federal governments cooperatively to provide pollution and conservation controls under laws applicable to all lands rather than use special rules applicable to Federal oil shale lands only. Mr. Chairman, the regulations as presently written would impede development, in my opinon, since they do not provide any economic incentive or advantage to a firm engaged in research and development. It is estimated that on an average it will take an investment of ~tround $125 million to build a plant that will produce 50,000 barrels of oil a day. Without some sort of advantage over potential competitors who might move in later and ride free, no company is going to invest millions of dollars in research and development to See that the effects of that are given away without cost to another company. Governor John Love, of Colorado, has predicted that private in- *dustry, given a free hand, could develop feasible methods for mining the oil shale by the next decade. It is estimated the development would bring in tens of millions of dollars annually in royalties to Utah, Colorado, and Wyoming, as well as to the Federal ~overnment. Mr. Chairman, I don't need to remind you that my State of Utah is controlled 74 percent by the Federal Government, which means that it only has a tax base of approximately one-quarter of its area, and PAGENO="0145" FEDERAL OIL SHALE PROGRAM 141 I feel that it should have an opportunity to acquire royalties under the present mineral leasing program from the development of oil shale. In order to attract private capital, the regulations must be revised to provide incentives for industry. These include the certainty of issuance of any commercial lease; the size of such leases, the right to benefit from successful research -undertaken at the lessee's expense; the right to hold Federal oil shale leases in more than one State under their varying conditions; and the existence of some predeter- mined royalty or rental payment program. I would suggest that perhaps Congress should assume the initiative in writing into law what I consider to be a reasonable and responsible leasing policy. In any event, I assure you of my continuing interest and support in Congress for early oil shale development. I am confident, Mr. Chairman, that in the American way private industry, working together with all levels of government, will be able to develop this tremendous resource for the benefit of all our people. I thank you for the opportunity to appear. The CHAIRMAN. Any questions? Senator ALLOTT. No; I just simply want to compliment the Senator from Utah on the very concise statement with which I certainly agree in the main. Senator HANSEN. I have no questions. The CHAIRMAN. Thank you, Senator Bennett. We appreciate having your statement. Senator BENNETT. Thank you very much. The CHAIRMAN. As previously stated, the statement of Senator Domithck and the Governor's letter will be included at this point. (The data referred to follows:) STATEMENT OF HoN. PETER H. DoMINIcIC, A U.S. SENATOR FROM THE SPATE OF COLORADO Mr. Chairman and members of the committee, it is a pleasure for me this morning to enthusiastically welcome and endorse the resumption of hearings by the Senate Interior and Insular Affairs Committee on the stthject of oil shale. As the members of this Committee are aware, this is an area in which I have been interested and Involved for many years. Oil shale was a complex topic even before the problems incident to the associated minerals question arose. Certainly it merits the fullest public attention and discussion. Mr. Chairman, I presented my general views on oil shale in testimony before the Antitrust and Monopoly Subcommittee during the April, 1967 hearings. Fol- lowing the announcement of the proposed regulations, I forwarded my comments to the Bureau of Land Management in June. My letter to the Bureau summarizes my' position and I respectfully request that the Committee make it a part of the hearing record. Thank you. (The letter referred to follows:) JuNE 8, 1967. Mr. BOYD L. RASMUSSEN, Director, Bureau of Land Management, Department of the Interior Washington, D.C. DEAR MR. RASMUSSEN: In accordance with the notice of proposed amendments to the regulations for the leasing of oil shale lands published in the Federal Register on May 10, 1967, I am forwarding my comments to your office. First, let me point out that I am delighted to see the Department of Interior's affirmative position for permitting private enterprise to carry out the research and development program. This is definitely a step forward and has my complete support. I am concerned, however, that the regulations, as drafted, are overly cautious. 76-82l-~7------lO PAGENO="0146" 142 FEDERAL OIL SHALE PROGRAM Although the participation of private enterprise is clearly contemplated, almost no incentive seems to be offered to encourage the same. What does one gain by engaging in the research and development program Frankly, an onerous responsibility and far too much discretion have been placed with the Secretary of the Interior. With respect to particular areas of the proposed regulations, my comments are as follows: OBTAINING A COMMERCIAL PRoDUCTION LEASE 1. There are no firm assurances by the federal government that one will receive a production lease even if he acts in good faith in performing his H & D lease. We should not expect the private sector to spend the large sums which will be required in research and development on the mere hope the Secretary may extend the H & D lease into a full scale production lease. 2. Of the three prerequisites to the Secretary's determination that a production lease shall be granted, the requirement that the lessee shall have "developed a mining and processing method" which is commercially feasible is most objection- able. There are no guidelines as to what constitutes a "method". Must the "method" be wholly new or may it contain elements of other processes which the regulations, as proposed, would place in the public domain? I question the neces- sity and desirability of such a provision particularly in view of the other two conditions: that the lessee's research activity was conducted "substantially in accordance" with an approved plan, and that the lessee "complied with all the terms of the lease". The lessee who completes the R & D phase by full good faith performance should not be penalized simply because he did not come up with a new method satisfactory to the Secretary. 3. Apparently the only manner in which you can acquire a production lease is to first complete an H & D lease program. This forces those who may have already developed advanced techniques to forego production. DISCLOSURE AND PATENTS 1. I am not convinced that techniques invented during the R & D stage should be placed in the public domain without compensation. Certainly iaariy companies are needed in the field to avoid undue concentrations of economic power. How- ever, it seems to me a better incentive system to accomplish this would be to allow patents on inventions made during the R & D stage with the requirement that the techniques be subject to licensing at specified royalties. 2. The regulations are silent as to whether the inventor will have exclusive rights to inventions made during the production phase. For clarity, a statement should be added dealing with the matter. 3. The proposed regulations would permit access by the Secretary not only to all facilities on the leased permises, but to any other facilities of the lessee where research Is conducted. Moreover, the Secretary would have the right to inspect "all" books and records directly relating `to the research. In my view this is far too sweeping, and will undoubtedly discourage participation by many. Representa- tives of government should not be allowed to run at large through the lessee's off-the-premises research departments or his bool~s and records under the guise of a connection with oil shale. The annual progress reports `and final report sup. plementing on-premises inspection should be adequate. 4. I am wary of the lessee being precluded from publishing or communicating anything concerning his research work with parties other than representatives of the Department of Interior unless he has the prior written approval of the Secretary. Such a provision would stifle or encumber the free exchange of ideas in trade journals, at conventions of the various professional groups whose members would be engaged in research, etc. There is no similar industry-wide ban among existing industries, nor should there be one `among the emerging oil shale and associated minerals industry. ACREAGE 1. Since the lease is apparently to be issued with its final acreage only tenta- tive, and the Secretary is to designate "the part of the leased lands" upon which research is to be conducted, does the 30,000 acre limit apply to the former or the latter? The regulations are ambiguous in this respect for they also seem to contemplate that only the amount of the H & D acreage will be knów~ up to the time for extension. At that point, a production lease may be granted for an "area" containing "reasonable reserves" as determined by the Secretary. PAGENO="0147" FEDERAL OIL SHALE PROGRAM 143 2. It is with some alarm that I note "the Secretary will determine the quan- tity of mineral deposits needed for commercial production" when the time arrives to consider extending the R & B lease into the production stage. To place sole discretion with a single individual is to me unwise. 3. If the 30,000 acre limit is intended to be the maximum acreage to which the R & D leases may be expanded as production leaseholds, and the Secre~ tary were to allow leases approximating the 5,120 acres permitted by the Mineral Leasing Act, only half a dozen R & B leases would be available. 4. Apparently the production acreage would be adjacent to and include the B & D acreage, but the regulations should be clarified in this regard. ROYALTIES 1. 1 have serious reservations about the far-reaching effects of the royalty structures proposed and feel this needs thorough reconsideration. 2. Gross value "at the point of shipment to market" as a basis for the minimum royalty rate of 3 per cent needs definition. I foresee some problems in applying this in integrated and non-integrated operations. 3. The provision for calculation and payment of additional royalties by March 1 "of the succeeding year" is inflexible and fails to provide for the situation where a taxpayer has elected a tax year other than the calendar year. 4. The time is not certain within which a lessee must file his notice of objection and offer to negotiate a proposed readjustment of royalties. If it is intended that the same 30-day period apply as for filing a relinquishment of the lease, some rephrasing would be beneficial. 5. It is not clear to me why the Secretary is required to publish a notice of any intention to reduce a royalty rate when there is no provision for publica- tion when an increase is suggested. DILIGENCE IN PLAN or RESEARCH 1. The regulations require diligence in "the plan of research upon which (the) lease was issued" after the B & B lease is fully performed. Research during the production stage should be left to the individual and the interplay of competitive forces in the economy. The effect of the regulations, as drafted is to tie the production lessee to his original plan of research though more efficient techniques may have been developed and made available to him in the meantime. APPLICATION FOR A LEASE 1. The application requires a statement of "the reasons why the applicant üeeds federally leased land" for research and development one of the factors to be used in evaluating his application is "the applicant's need" for the land and for "reserves". It is difficult to think of a provision which could be more ambiguous, unnecessary, and susceptible to abuse. It is to be noted the regula- tions already delineate maximum limits on the interest one may take, hold, own or control. 2. The requirement that the application describe the "reserves" owned or controlled by the applicant should be clarified as to whether information is sought on known or recoverable reserves. DRAFTING 1. The frequent use of the word "will" throughout the regulations rather than "shall" or "may" likely will lead to problems of interpretation. Sincerely, PETER H. DOMINICK, U.S. Senator. Re oil shale program. Hon. STEWART L. UDALL, Secretary of the Interior, Department of the Interior, Washington, D.C. DEAR SECRETARY UDALL: You have discussed with us your Concern with de- velopment of an oil shale industry utilizing the federally owner, as well as state and privately owned oil shale deposits. You have expressed your pref- erence for private development but only if such route is consistent with full PAGENO="0148" 144 FEDERAL OIL SHALE PROGRAM consideration of other values, including optimum financial return to the federal government, preventing of pollution, stopping monopolies, avoidance of spec- ulative windfalls, elimination of wasteful extractive practices, and preserva- tion of aesthetic and other values of national concern. Basic to all our thinking is of course, our obligations to avoid waste of the resource itself by denying it an opportunity to enter the energy field. Our discussions, including the one with you, have identified what we consider to be the major goals by which to judge any program for development of fed- erally owned oil shale, and probably of non-federally owned oil shale as well. These are- 1. Development of oil shale as an available supplemental energy source to meet national security needs. The other benefits of development, na- tionally and regionally, are obvious without further comment. 2. Protection against pollution and waste and against any unnecessary lessening of aesthetic and other use values. 3. ProvisIon for maximum privately financed development as an alterna- tive to publicly financed operations. 4. Provision for optimum financial return to the federal government by minimizing windfall profits, monopoly control and preferred treatment for any segment of the national economy. 5. Giving fair recognition to the role of private, state, and federal con- tribution to an oil shale development program and to the just interests and responsibilities of each. After consideration of your proposed regulations we conclude we should here honor your request for our advice by leaving technical discussion to the lawyers and other professionals and addressing our comments to the soundest method for achieving those essential goals. You have indicated your proposed regulations are tentative and that you seek and welcome suggested improvements. After ëareful study we conclude that the regulations need some revision to best achieve your stated objectives. We agree with you that a competitive pri~ vate enterprise, operating within the framework of the general laws for the protection of the public interest, is the only suitable vehicle for the development of an oil shale industry. This view gives full recognition to our full and firm support for proper con- servation of our natural resources, for preservation and improvement of our environment, and for proper regulation of those who would misuse the oppor- tunities afforded private enterprise in our nation and states. All these we have weighed, and no one should assume otherwise. Our concern is with seeing that an oil shale industry develop, and that all development, whether on federa', state or privately owned land conforms to controlling public interest require- ments. The following expands our views on the results of testing the goals we have stated against proposed and possible alternative procedures. First: National $ecurity. Oil shale in the ground and without availability of its oil and other products through proven and immediately useable methods is valueless in national emergencies. Recent Middle-East and other area incidents show that potential need for alternate sources of oil may arise with critical sud- denness. Only presently accelerated research and experimentation plus pilot apd proto-type plant operations in a variety of areas can provide the answer. Not to know whether oil shale resources can be available if and when needed is a dan- gerous Ignorance we need not and should not risk. We believe the public interest, with special emphasis on national security, de- mands that shale oil in substantial quantity begin to flow to the market place in the 1970's. A program which brings to bear all of the financial and technological resources of industry can accomplish this objective. Such a program for offshore oil land drilling resulted in resolving much the same questions as are found in developing oil shale. Such a program for oil shale can, we believe, result from your regulations as to the federal portion of the resource. The changes in ap- proach, which we propose, will better achieve the necessary efforts from industry. /S~econd: Protection of other values. There can be no disagreement between us as to the need to avoid waste of the resource itself by non-use or misuse, to stop or prevent air and water pollution, to treasure and protect all surface and aesthetic values to the greatest extent possible, to give our full attention to water and community development and planning. Our only possible disagreement would PAGENO="0149" FEDERAL OIL SHALE PROGRAM 145 be as to methods. Neither the federal, state, or private interests have or should have a monopoly Oil devotion to or efforts for such programs. Each has its place. No program would be acceptable to our states which disregards the multiple values of those areas containing oil shale. Third: Private Financing. The full costs of carrying an unborn oil shale in- dustry to full growth can only be estimated. However, the development of oil shale in our three states appears to be a closely parallel situation to the recent history of the Outer Continental Shelf. Less than a generation ago, little was known about techniques of handling deep water drilling. The impediments to such development were considered all but insurmountable, Investments to date on only the Gulf of Mexico portion of the Outer Continental Shelf have been esti- mated at over six billion dollars. The six billion investment was private money from many companies. Without reasonable rules and adequate incentives, private capital could not have been invested. An appropriation of such funds from the federal treasury would have been unlikely. In June of this year, bonus bids of $510,000,000, one-half billion, went into the federal treasury for the blocks offered on the Continental Shelf off Louisiana. With adequate opportunities and incen- tives, private development of oil shale might duplicate such progress. If private ~apita1 can make the investments required, increasing our national budget by federal appropriations would be unnecessary and undesirable, even if otherwise possible. Private capital can be expected to make the investments and provide the ef- forts if incentives are adequate. We suggest that certain changes in your pro- posed program are needed to achieve such private effort. The concept of negotiated leases based on the "need" of an applicant for oil shale reserves creates serious impediments to any development. It also creates serious problems for administration that far overbalance any possible benefits. The actual "need" with which we are concerned is the need for our nation to develop an alternate source of energy to be available when required. The premise of your proposed regulations appears to be that the lease holder who has no pres- ent oil or other reserves might be expected to proceed more aggressively. It does not necessarily follow that he will be most successful. We suggest that this method of trying to obtain active and successful lessees by choosing a select few might stifle the efforts w4ilch ultimately would be most successful. Active programs of research and development `can better be achieved by a combination of incentives to go forward and penalties in some form such as increasing rentals if there is not successful progress to production. You have assured us that each of the three states would have at least one research and development lease offered. Even so, the difference in conditions from area to area, might cause applicants to limit themselves to one area. There would be no opportunity for the great complex of problems such as land owner- ship diversity, feasibility of strip versus underground mining, economic climate, and other factors to generate simultaneous interest in several and, hopefully, many different locations. We suggest also that acreage limitations not preclude one party holding oil shale leases in more than one state. Further, we question the wisdom of a Secretary of the Interior exposing his high office to the attacks which will be made charging favoritism and special interest. Selection of one of several applicants could be considered a form of special preference. Even if such selections were uniformly successful, the charges of benefit to a chosen few could appear. An open competitive bidding situation is the one method most likely to avoid these attacks and the resulting deterioration of confidence in government. The government's interest in net profits and its tight control of the plans of research and development do not provide `the optimum opportunity for successful development. In addition they are incompatible with the sound investment and risk-taking policies of the American businessman who must elect to perform and finance the oil shale ventures. Under the "net profits" provisions the federal government will take a rental if there is no production. It will take a 3% royalty on gross sales if there is production but no profit, but a "net profit" share up to 50% if there is a profit in excess of the 3% royalty. The government share of "net profit" fixed in the proposed regulations uses the depreciated investment as a base~ Foreseeable oil shale commercial production is not anticipated for several years. The depre- ciated investment at such time might make `the first profit in the 50% bracket and normal recoupment of heavy initial investment and operation costs would PAGENO="0150" 146 FEDERAL OIL SHALE PROGRAM be denied. Since a corporation can be expected to pay a federal income tax equal to 50% of its net profit, the initial profit sharing with the United States might more likely be on a 25-75 basis. The critical objection to the "net profits" approach is the repressive effect it has on proceeding into commercial production. The principal difference in ex~ penditures for traditional oil recovery and for recovery of oil from oil shale is the exploration costs. Oil exploration expenses have been substantial; lifting or extraction costs are usually relatively minor. As to oil shale the reverse is true. Once oil is discovered by exploration, the economic test as to producing it for market is whether the sale receipts exceed the lifting and marketing costs. Lease acquisitions and exploration costs may be greater than can be recovered from production, but production of oil is still economically justified. If a "net profits" charge is made by the lessor, the charge is added to lifting, or extraction costs, whether the product be oil from wells or oil from oil shale. Production is thereby repressed, and the product unproduced is wasted and withheld from its place in the continually growing energy complex of our national economy. Excellent testimony on this and related points was presented at the recent monopoly hear- ings as to oil shale held by Senator Hart. Specifically testimony was given by Dr. Walter J. Mead and Dr. Henry Steele. The "net profits" approach is also open to question because of the expense to both lessor and lessee of maintaining and supervising records, and because of potential inefficiencies being made economic to the lessee. Among the incentives to proceed which we note as needed, but missing in your proposed regulations, are the certainty as to whether any commercial lease will issue, the size of such lease, the right to benefit from successful research at the lessee's own expense, the right to hold federal oil shale leases in more than one state under their varying conditions, and the existence of some predetermined rovaltx or rental payment that can be calculated. Regarding patents, the requirement of the proposed regulations that all patents and inventions arising out of the lessee's research become the property of the United States is not consistent with the position which we believe the govern- ment should maintain as the lessor of an oil shale lease. Laws against monopoly and emergency power of government in times of need can protect the public interest. There is no reason why the government should d~emand the further consideration of the right to inventions made at the lessee's expense, nor do we believe that President Kennedy's Statement of Government Patent Policy of October 12, 1963, need be construed to require such a harsh interpretation. To do so, of course, deprives the inventor of the reward given for his discovery. This reward-this hope of greater profitability or better competitive position-is the incentive which not only spurs inventors to make discoveries but spurs their competitors to make others lest they otherwise fall behind. It is not reasonable to require that an inventor who has taken substantial risk of time and money to make an invention should give it up without just compensation, and, worse yet, have it made available free of cost to competitors who have not shared in that risk. This approach necessarily places the forward looking, aggressive lessee at an economic disadvantage relative to his competitors. It is submitted that this device will discourage rather than encourage research. Such a plan may also lead to the pooling of research efforts and the elimination of effective competitive research. We consider that your concern with preventing lessees from acquiring and holding leases for speculative purposes and without progress toward production is justified. The costs of holding non-producing leases are one of the best pre- ventive measures. Suggestions which we feel worthy of consideration are a fixed term lease that can be extended only by production, with a substantial rental per acre, and with such rental or minimum advance royalty increasing each year. Such procedure has the added importance of bringing revenue to the federal government and states from resources that today produce no return. Fo'urth: Finaiw'taZ Return. The failure of the federal government to realize any rentals is hard to understand. The States and Reclamation fund share in Minerel Lease Revenue, in contrast to the Outer Continental Shelf where the federal government keeps 100%. Even if no royalties materialize, rentals could be substantial. The shifting from public to private investors of the cost of research could be another substantial financial benefit. PAGENO="0151" FEDERAL OIL SHALE PROGRAM 147 As previously discussed, the potential return to the federal government would probably be as great or greater from a fixed royalty than from a "net profits" share. Under a competitive bidding system for leasing, the initial bonuses could be substantial without acting, as would a "net profits" provision, as a deterrent to production. Fifth: Joint Federal-~S'tate-and Private Efforts. Concern with many values over and above the oil shale itself is proper, but to assume that only the federal gov- eriunent as a proprietor can control these matters' is unreali'stic and unduly obstructive. Such position ignores that state and private lands also contain oil shale and would have to be separately regulated, controlled, or supervised. The states have policing power and laws against pollution and other abuses. They can and must enforce them. Should they fail federal intervention would become necessary. The pattern of federal legislation on pollution, administered to some extent by your department, already exists and is applicable to all lands. Until federal intervention is necessary states should not be denied their proper part- nership position. Likewise. responsible business leaders are emphasizing `sound conservation. This acceptance of our national ideals should be cultivated and encouraged not only because it minimizes the governmental costs of regulation and supervision, but also because in the long `term, it is most effective. A three state compact is one possible approach, although we see no present overwhelming need. We in Colorado, Utah and Wyoming, in cooperation with interested industrial concerns, have been doing `all within our power to lay the groundwork for a siz- able oil shale industry. Preliminary attention has been given to' the complex problems of financing the schools, roads' and community services which inevitably must be provided for oil shale communities. Much thought has been given to zoning and city planning so that oil shale communities will be model cities and not cancerous blights. Colorado, Utah and Wyoming have taken a position of strong leadership in the fields of natural resonrce conservation and the abatement and prevention of air and water pollution. We are convinced that these matters-as matters' of great local concern-can be `and should be handled at the local level where the prob- lems are and where the people directl~r affected reside. We intend to do all that is needful in these matters and are satisfied of our ability to do so. We are most encouraged by the cooperative attitudes of Colorado, Utah and Wyoming indus- trial leaders towards acceptance of and compliance with our antipollution legis- lation. We fully expect enlightened participation in the resolution of these matters. SPECIFIC RECOMMENDATIONS As shown by our discussion above, we specifically recommend you consider changing your proposed regulations to achieve the national interest goals by: 1. Opening lands to competitive bidding in blocks up to 5120 acres upon your or private nomination, using the tested competitive bidding procedures for other leaseable minerals under the federal Mineral Leasing Act. 2. Provide a fixed royalty rate as in the case of oil and gas or other lease- able minerals, but including a provision for periodic renegotiation at a rearn sonable period after production commences. 3. Fix a term of at least ten years which can be extended only by pro- duction. Less than ten years is probably impractical due to the present stage of oil shale technology. 4. Initiate an immediate rental program that will produce revenue under the Mineral Leasing Act. 5. Provide for increasing rentals or accelerating advance royalties during the term of the lease, so that speculative non-productive holdings is uneco- nomic. Give to legitimate producers the opportunity to offset such penalizing expenses by obtaining successful production. G. Eliminate the research and development leases as the only immediate method of obtaining leases on federal lands. Avoid the necessity of choosing between proposals and possibly thereby eliminating some that might con- tribute to ultimate success. Minimize administrative costs and supervisory burdens by simplifying accounting. 7. Eliminate the net profits approach as being adverse to our ultimate goal of production. Also, we can recognize the taxes collected on operations are in essence net profits charges. PAGENO="0152" 148 FEDERAL OIL SHALE PROGRAM 8. Provide incentives for achievement, including elimination of the re- quirement that inventions be made publicly available without charge other than when public funds finance such development. 9. Allow and expect the states and federal government to provide the pollution and other conservation controls through state and federal coopera- tion under the laws applicable to all lands, rather than by use of rules appli- able to federal oil shale lands alone. We commend you for moving in this controversial field. Your announcements o~ the principles you follow are appreciated. Our recommendations, we believe, go to the heart of those principles. We feel they will provide the means by which the federal, state and private segments of our nation can most fairly and equi- tably proceed in the best of interest of all. Very truly yours, JOHN A. LOVE, Governor of Uo~orctdo. CALvIE L. RAMPTON, Governor of Utah. STANLEy HATHAWAy, Governor of Wyom'iivg. The CHAIRMAN. Congressman William Henry Harrison of Wyoming. STATEMENT 0]? HON. WILLIAM H. EA:ftRISON, A U.S. REPRESENTA- TIVE PROM THE STATE OP WYOMING Mr. HARRISON. Thank you, Mr. Chairman. I appreciate every much the opportunity of appearing before your committee, particularly be- cause my good friend and very able junior Senator of Wyoming, Clif- ford Hansen, is one of your members. Wyoming, of course, is very mucl~ interested in the proper protec- tion and the proper mining of the oil shale lands, particularly because Wyoming has the largest deposit of oil shale, even though it is not quite as rich in oil-bearing shale as the deposit located in Colorado. However, this presents a problem to our State. We are a natural re- source State, and in order for our State to progress industrially, we must be in a position to use our minerals and our other natural resources. In Sweetwater County, Wyo., where a great deal of the oil-bearing shale is located, we have large deposits of trona, which is being mined now by several outfits-FMC and Allied Chemical are two of them- and they are very much worried over the possibility that the mining of trona will be restricted through the withholding of the oil shale lands. At the request of Mr. Cimino, representing the manager of the FMC Corp. at Green River, Wyo., and Mr. Russ Beamer, secretary of the Wyoming Association, I am here before you asking that some certain changes be recommended in the regulations published by the Depart- ment of the Interior in the Federal Register of Wednesday, May 10, and I would like to read a part of the telegram sent to me from Mr. Cimino setting out some of the points he would like to have changed in order to protect the trona industry in our State: 1. The purpose of the regulations should include language establishing nonin- terference with the leasing or mining of trona in Sweetwater County. 2. The definition of oil shale should exclude trona which is to be used in a commercial facility in addition to the presently proposed exclusions of gas asphaltic minerals or coal. PAGENO="0153" FEDERAL OIL SHALE PROGRAM 149 3. The designation of available lands should exclude, protect, and preserve lands containing trona of commercial value in Sweetwater County. 4. The proposed regulations should include language to protect the renewal of Wyoming sodium leases. I would like, Mr. Chairman, to be able to introduce that telegram and have it made part of the record. The CHAIRMAN. It will be introduced in the record in connection with your remarks. (The telegram referred to follows:) [Telegram] DENVER, CoLo., September 13, 1967. Hon. WILLIAM H. HARRISON, House Of/toe Building, Washington, D. C.: Russ Beamer advises that a Senate hearing is to be held September 14, 15, at which the proposed regulations regarding the leasing of oil shales will be dis- cussed. We will appreciate your assistance in protecting the trona rights in Sweet- water County. We suggest that these rights be protected by the inclusion of trona land exception amendments to the proposed regulations (43 CFR 3170). The amendments should contain the following: 1. The purpose of the regulations should include language establishing non- interferance with the leasing or mining of trona in Sweetwater County. 2. The definition of oil shale should exclude trona which is to be used in a com- mercial facility in addition to the presently proposed exclusions of gas asphaltic minerals or coal. 3. The designation of available lands should exclude, protect, and preserve lands containing trona of commercial value in Sweetwater County. 4. The proposed regulations should include language to protect the renewal of Wyoming sodium leases. Please advise if we can be of any further assistance in this matter. S. M. CIMINO, Resident Manager, ?MC Corp., Green River, Wyo. Mr. HARRISON. I have also received a call from Mr. Beamer, who, as I said, represents the Wyoming Mining Association, and he has sub- mitted to me certain proposed changes in the regulations promulgated by the Secretary in the Federal Register, and I believe that these pro- posed changes are identical to the changes which were recommended to the Secretary of the Interior, Mr. lJdall, by Allied Chemical earlier, and I would like to read just the proposed changes to 43 CFR 3170, just briefly. Add a new subsection (f) to Section 3170.0-i reading: (f) not interefere with the leasing or mining of trona in Sweetwater County, Wyoming. Second, modify subsection (b) of section 3170.0-5 (Definition of the term "Oil shale") to read (new matter in italic and word to be deleted bracketed): (b) deposits subject to lease as oil and gas, asphaltic minerals, (or] coal, or sodium ttrona] in Sweetwater County, Wyoming, to be used in a oom~meroial fa- cility for the production of soda ash and/or other chemical products. Third, the present paragraph designated as section 3170.1 (Designa- tion of available lands) be redesignated as subsection (a) and a new paragraph designated as subsection (b) be added reading: (b) Lands containing trona which are located in Sweetwater County, Wyo- ming, and which are presently or hereafter held under sodium leases pursuant to the Mineral Leasing Act and which also contain oil shale shall not be desig- PAGENO="0154" 150 FEDERAL OIL SHALE PROGRAM nated hereunder unless the development of the oil shale therein would not ad- versely affect in any significant way the trona values of such lands. Any such oil shale lease shall contain terms and provisions governing the oil shale develop- ment as are adequate to fully protect and preserve the trona values of such lands. Finally, it is urged that the proposed regulations be amended to incorporate a new provision designed as Section 3170.2 reading: RENEWAL OP WYOMING SODIUM (mONA) LEASES Nothing contained herein shall be construed to limit, now or hereafter, in any manner whatsoever the application for and/or the granting of any renewal of any sodium lease for the mining of trona on lands located in Sweetwater County, Wyoming. Although I have been assured by the representatives of the Depart- ment of Interior that there is no desire on their part nor intention to injure in any way or to withhold the mining of trona in Sweet- water County, Wyo., it is felt there by the industry, and many of us in the State, that in order to go ahead with the production of trona which is necessary in our State for our economy and for the supply of the material for the country, that these provisions should be changed and should be inserted as a change in the regulations as promulgated by the Secretary in the Federal Register. I hope that these ideas can be considered and these changes made, and I am sure that if they are the mining of the oil shale, which will probably be in the future, will not be injured in any way but in the meantime the mining of trona can proceed in a proper and orderly manner as it should. The CHAIRMAN. Thank you, Congressman. Any questions? Thank you very much for your statement. Senator HANSEN. Mr. Chairman, if I may, I would like to compli- ment Congressman Harrison for the very able job he does in represent- ing Wyoming and to echo his concern as expressed in the telegram that he received from Mr. Cimino. I, too, have a copy of that wire, Congressman Harrison, and I had intended to insert it in the record. You have already done it, so I simply say that I endorse what you have said. Mr. HARRISON. I know that our junior Senator is well aware of the problems of the State of Wyoming, and he takes the proper and nec- essary steps to see that those interests are protected. Thank you, Mr. Chairman. The CHAIRMAN. Thank you, Congressman. I appreciate your coming here. Our next witness will be Secretary tTdall. Mr. Secretary, we are delighted to welcome you to the committee this morning to discuss this most important subject. We are delighted that you have the Solicitor, Mr. Barry, with you. STATEMENT OP HON. STEWART L UDALL, SECRETARY OP THE INTERIOR, ACCOMPANIED BY PRANK BARRY, SOLICITOR, DE- PARTMENT OP THE INTERIOR Mr. TJDALL. Thank you very much, Mr. Chairman. I assure you I have enough misery where I am. Mr. Chairman, I have a prepared statement which I shall read, and we also have available for the committee and for the record what we PAGENO="0155" FEDERAL OIL SHALE PROGRAM 151 have styled a general Summary of the comments which have been re- ceived by this department up to this point. This is not complete, but we did feel this should be in the record. The CHAIRMAN. Without objection, the comments you referred to will be included at this point. (The document referred to follows:) GENERAL SUMMARY Thirty six specific comments have been received or considered by August 22, 1967, in connection with the invitation to submit comments concerning the pro- pose'd oil shale regulations as published in Federal Register of May 10 (Vol. 32, No, 90). These commenits were separated into the following categories: Congressional 2 Federal agencies 3 State government agencies 4 Associations 2 Industry 18 Conservation groups 1 Private individuals 6 The period for submitting comments has been extended until the close of busi- ness October 16. Summary Analysis Major interest in the proposed regulations center around the following points: 1. Royalties: Some stated the regulations concerning royalty are not realistic, and that to encourage company participation no royalty should be required until at least five years after commercial production; thereafter, the royalty should be modest-i.e., five percent of the production at the mine or welihead. There was a suggestion that royalty payments be used to offset deferred rentals. 2. Patents: Some stated that the provision in the proposed regulations that the United States acquire title to all inventions will discourage participation. It was contended that as an incentive, the participant should have the right to retain title to all inventions subject only to the requirement that they be licensed to others on a nondiscriminatory reasonable royalty basis. Most making this point also urged a use of a competitive leasing system. On the other hand the view was expressed that the patent technology be available to all without cost. 3. Term: It was suggested that the lease should be for a fixed term of years and as long thereafter as oil shale is commercially produced-provision should be made for an extension of the fixed term on a showing that research has proceeded diligently and that there is a reasonable possibility that research will prove successful or that commercal production can be obtained during the extended term. It was suggested that the uncertainties contained in the proposed regulations with respect to the lease term should be eliminated. 4. Acreage: Some criticized the provision Permitting a reduction in acreage when commercial production is attained. It was contended that few companies would be willing to undertake a research project of this nature without know- ing in advance the number of acres that it would be entitled to hold during both the research and commercial phases of the lease. It was also urged that one of the most important facts to be developed through research is a determina- tion of the optimum sized tract for oil shale development and that the acreage allowed a participant should be large enough to permit research and experilnenta- tion in this regard. 5. Selection of Lessees: There was opposition to the criterion of evaluating applications for leases on the basis of the applicant's need for lands to conduct research, on the ground that applications should be granted to any applicant that indicates it has the financial and technical ability to conduct a good research program. Many suggested that competitive bidding be used as the system for selecting lessees. 6. Multiple Resources: Some urged that it was not clear from the proposed regulations whether nahcolite and dawsonite are included in the definition of PAGENO="0156" 152 FEDERAL OIL SHALE PROGRAM oil shale, and that this question be clarified so that if an applicant proposes a research program designed to developed a method for the extraction of minerals associated with the oil shale, that proposal be given weight in con- sidering the application. 7. Disclosure of Information: Some opposed the provision making all data available for public use, because that would remove the incentive for invest- ment. It was suggested that the lessee furnish, on a confidential basis, the data needed to indicate good faith and prudence. 8. Discretionary Authority of the Secretary: Some raised objection to the degree of discretion in the Secretary to determine the research type and site, the quantity of mineral, the need for commercial production, the area of com- merical production and the commercial extension of the lease term, as making it extremely difficult to predict profit potential and to secure financing. 9. Land Ewehanges: It was suggested that the land exchange provisions under the proposed regulations are too restrictive in requiring that the lands to be exchanged have similar geologic and physical characteristics. The sug- gested criterion was that the offered lands be of a value approximately equal to or exceeding the value of the selected public land. Another objection was that land obtained in trade would be subject to many of the public land regulations~ 10. Miscellaneous Comments Were as Follow's: a. Antitrust consultation is unnecessary. b. Leases should contain provisions permitting joint operations. c. Leases should include customary force majeure provisions. d. Mining claim conflicts should be resolved. e. The automatic termination provision should be clarified to prevent the lessee from losing his investment. Provision `should be made permitting re- moval of plant and facilities. CONGItnBSIONAL I. Senator Hart-UougressionaZ Record, July 11, 1967 Oil shale leasing program would haue some unhappy results-monopolization by the major integrated American Oil Companies, higher consumer prices and lacka- daisical development. The flaws in the program are: A. the use of land subsidies would discourage all but the largest integrated companies from competition for leases. B. it would keep enterprising companies willing to proceed with present technology from actually beginning production. 0. it would keep some research oriented companies from becoming in- volved. D. the program wottld discourage total development of all the resources, particularly aluminum and sodium since large integrated companies exper~ tise in drilling-not mining. E. it requires the most pervasive kind of continuous Government regula- tion with subjective decisions to be made on a regular basis. This could be a stifling barrier to rapid development and an open invitation to charges of "give-away." One aspect of the program should be applauded-providing that government will acquire title `to all inventions made itt the course of the research and require- meat for licensing of other patents. Senator Hart suggests the following alterna- tires. 1. ~l0,000 acres as a start should be thrown open to leasing on a hid basis, not tied to research and development. 2. the leasing agreement should provide for deferred high rentals which would be offset by royalty payments. Under such plan, the land is most likely to be leased by non-petroleum industry. 3. the land should be leased on the basis of minerals in the ground-not acreage alone. 4. wherever possible the land to be made available should be kept intact and contiguous. The Government should embark on a intensive research program to' develop both the in-situ process and technology to extract sodium and aluminum. Other alternatives were suggested for a PVA or Co'msat type corporation. There is general agreement that prompt development of `these resources is desirable. PAGENO="0157" FEDERAL OIL SHALE PROGRAM 153 11. &mator Peter H. Dominick, letter of June 8, 1967 The departments affirmative position for permitting private enterprise to carry out R & D is a step foreward. The regulations are overly cautious'. An onerous responsibility and too much discretion is placed in the Secretary. Specific com- ments are directed to- A. Obta4ning a Commercial lease: 1. no firm assurances by the government that one will receive a production lease. 2. the requirement that a leasee shall have "developed" a mining and processing method is most objectionable. No guidelines are given as to what constitutes a "method." 3. the only manner in which you can acquire production lease is to first complete an R&D lease. This restricts those who may already have developed advance techniques to forego production. B. Disclosure of Patents: 1. techniques invented during R&D should not be placed in public domain without compensation. Should be subject to licensing a specified royalty. 2. regulations are silent as to whether inventor will have exclusive rights to inventions during production phase. 3. regulations permitting access to all facilities on and off site and all books and records is far too sweeping. 4. the prohibition or limitation to publication or communication concern- ing research work would stifle or encumber free exchange of ideas in trade journals and between professional groups. C. Acreage: 1. the regulations are ambiguous about the. acreage or area containing "reasonable reserves" and what guidelines will be used to make this deter- mination. 2. to place the sole discretion with a single individual (the Secretary) for the determination of the quantity of mineral deposit needed for commercial production is unwise. 3. only a half a dozen leases would be available if only 5,120 acre leases were issued. 4. the regulations should clarify whether the production acreage would be adjacent to and include the R & D acreage. D. Roijalties: 1. the proposed royalty structure needs' reconsideration. 2. gross value "at the point of shipment to market" needs clarification. 3. royalty payment period should be adjusted to ta~ period. 4. clarification of rephrasing is needed to specify the time within which lessee must file objection and offer to negotiate a proposed re-adjustment of royalties. 5. why publish a notice of intention to reduce royalties and not publish a notice of intention to increase royalties. B. Diligence in Plan of Research: The effect of regulation is to tie production lessee to his original plan of research instead of competitive and more efficient techniques which may be developed. F. Application for lease: The requirement in the application for a statement of need for federally leased land is ambiguous and susceptible to abuse. G. Drafting: The frequent use of the word "will" instead of "shall" or "may" will lead to problems in interpretation. FEDERAL AGENCIES 1. Federal Water Pollution Control Administration June 8, 1967 Require notice to prospect lessees that they will be required to include adequate research, development and implementation measures for water pollution. The FWPCA proposes amendments to the regulations to insure strict water and air pollution control. II. Bureau of Sports Fisheries and Wildlife May 25, 1969 The Bureau proposes re-phrasing to insure protection of environment, including air and ground and surface water. PAGENO="0158" 154 FEDERAL OIL SHALE PROGRAM III. Bureau of Outdoor Recreation The Bureau requests that a section be inserted to provide consultation with B.O.R. in site selection and priority of areas to be given where there will be the least adverse effect on recreation resources and natural beauty environment. svATEs I. Governors John A. Love, Colorado, Calvin L. Rampton, Utah, and stanley Hathaway, Wyoming, joint letter to the secretary A. The major goals for a development program on federally owned oil shale land.s and probably non-federally owned oil shale lands are: 1. Development of oil shale as an available supplemental energy source to meet national security needs. The other benefits of development, nationally and regionally are obvious without further comment. 2. Protection against pollution and waste and against any unnecessary lessening of aesthetic and other use values. 3. Provisions for maximum privately financed development as an alter- native to publicly financed operations. 4, Provision for optimum financial return to the federal government by minimizing windfall profits, monopoly control and preferred treatment for any sngment of the national economy. 5. Giving fair recognition to the role of private, state, and federal contri- bution to an oil shale development program and to the just interests and responsibilities of each. They concluded `that the regulations need some revision to best achieve the stated objectives; They agree that a competitive private enterprise, operating within the framework of `the general laws for the protection of the public interest, is the only suitable vehicle for the development of an oil shale industry. The following expands their views on the results of testing the goals they have stated against proposed and possible alternative procedures. 1. National $ecurity.-Oil shale in the ground and without availability of its oil and other products through proven and immediately useable methods is valueless in national emergencies. Only presently accelerated research and experimentation plus pilot and proto-type plant operations in a variety of areas can provide the answer for the availability of the petroleum product. 2. Protection of other values.-There can be no disagreement as to the need to avoid waste of the resource itself by non-use or misuse, to stop or prevent air and water pollution, to treasure and protect all surface and aesthetic values to the greatest extent possible, to give our full attention to water and community development and planning. The only possible disagreement would be as to methods. Neither the federal, state, or private interests have or should have a monopoly on devotion to or efforts for such programs. No program would be acceptable which disregards the multiple values of those areas containing oil shale. 3. Private Financing.- (a) The full costs of carrying an unborn oil shale industry to full growth can only be estimated. However, the development of oil shale in the three states appears to be a closely parallel situation to the recent history of the Outer Continental Shelf. Less than a generation ago, little was known about techniques of handling deep water drilling. The impediments to such development were considered all but insurmountable. Without reasonable rules and adequate incentives, private capital could not have been invested. With adequate opportunities and incentives, private development of oil shale might duplicate such progress. Private capital can be expected to make the invest- ments and provide the efforts if incentives are adequate. Certain changes in the proposed program are needed to achieve such private effort. (b) The concept of negotiated leases based on the "need" of an applicant for oil shale reserves creates serious impediments to any development. It also creates serious problems for administration that far overbalance any possible benefits. The actual "need" with which we are concerned is the need for our nation to develop an alternative source of energy to be available when required. The premise of your proposed regulations appears to be that the lease holder who has no present oil or other reserves might be expected to proceed more aggres- sively. It does not necessarily follow that he will be most successful. (c) Further, the wisdom of a Secretary of the Interior is questioned. He is exposing his high office to the attacks which will be made charging favoritism PAGENO="0159" FEDERAL OIL SHALE PROGRAM 155 and special interest. Selection of one of several applicants could be considered a form of special preference, Even if such selections were uniformly successful, the charges of benefit to a chosen few could appear. An open competitive bidding situation is the one method most likely to avoid these attacks and the resulting deterioration of confidence in government. (d) The government's interest in net profits and its tight control of the plans of research and development do not provide the optimum opportunity for suc- cessful development. In addition they are incompatible with the sound invest- ment and risk-taking policies of the American businessman who must elect to perform and finance the oil shale ventures. (e) Under the "net profits" provisions, the federal government will take a rental if there is no production, it will take a 3% royalty on gross sales if there is production but no profit, but a "net profit" share up to 50% if there is a profit in excess of the 3% royalty. The government share of "net profit" fixed in the proposed regulations uses the depreciated investment as a base. Since a corporation can be expected to pay a federal income tax equal to 50% of its net profit, the initial profit sharing with the United States might more likely be on a 25-75 basis. The critical objection to the "net profits" approach is the repressive effect it has on proceeding into commercial production. The principal difference in expenditures for traditional oil recovery and for recovery of oil from oil shale is the exploration costs. The "net profits" approach is also open to question because of potential inefficiencies being made economic to the lessee. (1) Among the incentives to proceed which we note as needed, but missing in your proposed regulations, are the certainty as to whether any commercial lease will issue, the size of such lease, the right to benefit from successful research at the lessee's own expense, the right to hold federal oil shale leases in more than one state under their varying conditions, and the existence of some pre- determined royalty or rental payment that can be calculated. (g) Regarding patents, the requirement of the proposed regulations that all patents and inventions arising out of the lessee's research become the property of the United States is not consistent with the position which we believe the government should maintain as the lessor of an oil shale lease. Laws against monopoly and emergency power of government in times of need can protect the public interest. There is nç reason why the government should demand the further consideration of the right to inventions made at the lessee's expense nor do we believe that President Kennedy's Statement of Government Patent Policy of October 12, 1963, need be construed to require such a harsh interpre- tation. To do so, of course, deprives the inventor of the reward given for his discovery. It is submitted that the device will discourage rather than encourage research. Such a plan may also lead to the pooling of research. Such a plan may also lead to the pooling of research efforts and the elimination of effective competitive research. (h) The concern with preventing lessees from acquiring and holding leases for speculative purposes and without progress toward production is justified. The costs of holding non-producing leases are one of the best preventive meas- ures. Suggestions which are worthy of consideration are a fixed term lease that can be extended only by production, with a substantial rental per acre, and with such rental or minimum advance royalty increasing each year, Such procedure has the added importance of bringing revenue to the federal gov- ernment and states from resources that today produce no return. 4. Financial Return.- ( a) The failure of the federal government to realize any rentals is hard to understand. The States and Reclamation fund share in Mineral Lease Revenue, in contrast to the Outer Continental Shelf where the federal government keeps 100%. Even if no royalties materialize, rentals could be substantial. (b) The shifting from public to private investors of the cost of research could be another substantial financial benefit. (c) As previously discussed, the potential return to the federal government would probably be as great or greater from a fixed royalty than from a "net profits" share. Under a competitive bidding system for leasing, the initial bonuses could be substantial without acting, as would a "net profits" provision, as a deterrent to production. 5, Joint Federal-State and Private Efforts.-(a) Concern with many values over and above the oil shale itself is proper, but to assume that only the fed- PAGENO="0160" 156 FEDERAL OIL SHALE PROGRAM eral government as a proprietor can control these matters is unrealistic and unduly obstructive. Such position ignores that state and private lands also contain oil shale and would have to be separately regulated, controlled, o~ supervised. The states have policing power and laws against pollution and other abuses. Should they fail federal intervention would become necessary. (5) A three state compact is one possible approach, although there is no present overwhelming need. (c) The Governor's of Colorado, Utah and Wyoming, in cooperation with interested industrial concerns, have been doing all within their power to lay the ground work for a sizable oil shale industry. Much thought has been given to zoning and city planning so that oil shale communities will be model cities and not cancerous blights. $peciflc recomimendations As shown by discussion above, the Governor's specifically recommend that we consider changing the proposed regulations to achieve the national interest goals by: 1. Opening lands to competitive bidding in blocks up to 5120 acres upon your or private nomination, using the tested competitive bidding procedures for other leaseable minerals under the federal Mineral Leasing Act. 2. Provide a fixed royalty rate as is the case of oil and gas or other leaseable minerals, but including a provision for periodic renegotiation at a reasonable period after production commences. 3. Fix a term of at least ten years which can be extended only by production. Less than ten years is probably impractical due to the present stage of oil shale technology. 4. Initiate an immediate rental program that will produce revenue under the Mineral Leasing Act. 5. Provide for increasing rentals or accelerating advance royalties during the term of the lease, so that speculative non-productive holding is uneco- nomic. Give to legitimate producers the opportunity to offset such penalizing expenses by obtaining successCul production. 6~ Eliminate the research and development leases as the only immediate method of obtaining leases on federal lands. Avoid the necessity of choosing between proposals and possibly thereby eliminating some that might con- tribute to ultimate success. Minimize administrative costs and supervisory burdens by simplifying accounting. 7. ]~lliminate the net profits approach as being ad~terse to our ultimate goal of production. Also, we can recognize that taxes collected on operations are in essence net profits charges. 8. Provide incentives for achievement, including elimination of the re- quirement that inventions be made publicly available without charge other than when public funds finance such development. 9. Allow and expect the states and federal government to provide the pollution and other conservation controls through state and federal coopera- tion under the laws applicable to all lands, rather than by use of rules applicable to federal oil shale lands alone. II. Colorado Department of Game, 1~'ish and Parks. May 26, 1967 Under Section 3172.9 (a) Protection of environment and human safety suggest that lease also contain provisions for conducting of concurrent research on methods of restoration of disturbed `areas and waste disposal areas. OIL AND GAS ASSOCIATIONS I. Rocky Mountain Oil and Gas Association Association is favorable to private industry's responsibility in oil shale de.. velopment. The proposed regulation will not generate a broad base of competitive research and production. A. General Comments are as follows: 1. government acreage should be to all qualified applicants for the sole purpose of research and it should not be restricted to applicants selected by the Secretary. 2. the uncertainty in the proposed regulations for commercial production extension is a definite deterrent to research and production. PAGENO="0161" FEDERAL OIL SHALE PROGRAM 157 3. the royalty provisions would operate and discourage investment, make ~t difficult to compete with other energy sources and would be difficult to administer. The RMOGA proposes a fixed royalty, not to exceed 5%. 4. the Government patent policy is not applicable to oil shale research on federal lands. The proposed regulations will curtail research by not al- lowing lessee to retain benefits and recoup investment. 5. the inherrent uncertainties make it impossible to do advance planning and financial evaluation for financing research and production operation. Difficulty, therefore of obtaining conventional financing will restrict R&D. These problems should be eliminated by drafting a prescribed form of lease and amending regulations to spell out in detail the Dept. supply connection. B. Specific Comments are as fotlows: 1. Section 3170.0-1.-Indicates an intent to favor those who have not pre- viously obtained oil shale reserves. 2. Section 3170.0-5.-The lease and regulations should specifically provide that an oil shale lease will include oil shale and all other associated minerals unless those minerals are not intermingled with oil shale and are capable of being produced separately. If separate, a preferential right to lease would avoid* problems arising from reciprocal convenants of support maintenance and non-interference between lessees. 3. ,S~ection 3171.2(c) (11).-The disclosure of crude oil reserves is not nec- essary or relevant to applicant's qualification. Delete. ~. Section 3171.3.-The applicant's need for lands and reserves is not mate- rial to a determination of an applicant's capability of conducting a commer- cial oil shale operation. 5. Section 3172.2(b) .-The wording may result in automatic termination of the lease if production ceases for any cause or if production ceases in paying quantities even temporarily. Safeguards to prevent loss of investment in plant and facilities should be provided. Guide lines should be spelled out with respect to the requirements of coin- mercial feasibility, optimum recovery, prevention of pollution and damage to surface resources. 6. Section 3172.3 (e) .-After substantial investment in research, the Secre- tary could unilaterly determine amount of mineral for estended production term. The amount of reserves should be known by lessee prior to making in- vestment. Since only one lease will issue to person, association or corporation an individual or company would be reluctant to take a lease unless the ex- tent of lands and reserves to be covered by the lease for commercial produc- tion were known. 7. Section 3172.3(d) -Should be clarified and state that a total `net" in- terest of not more than 5120 acres in United States oil shale lease will be allowed. 8. Section 3172.5(b) .-Needs clarification. Suggest that gross value as provided attach to product from retort, where mining and retorting process used, or at welihead of an in-situ well. This section is unclear as to whether previous cost of research and experimentation are to be included in term `investment". 9. Section 3172.5(e).-Suggest additional criteria and provisions to avert uncertainties affecting a large investment such as the date which such 20 year period would be measured. 10. Section 3172.6.-Proposes that the extension of the lease for a com- mercial production term should be at option of lessee subject to having com- plied with specific requirements, rather than unilateral discretion and action of the Secretary. The lease would provide specifically for right to remove plant and facilities upon termination of the lease. 11. Section 3172.9 (d) a'nd (e).-RMOGA believes these provisions would discourage competition in development of techniques for oil shale develop- ment. The patent provisions are in effect a denial and rejection of the phi- losophy of the patent laws of the United States. Conclusions and recommendations The Rocky Mountain Oil and Gas Association has a membership of 470 indi- vidual and company oil and gas operators of all sizes, from the smallest of inde- pendents to major oil companies. As we have considered the proposed regulations %vitbin our organization, we have found a wide range of individual situations and views. If the oil shale resources are to be effectively developed to meet the needs of the nation we believe that the proposed rules should be broadened and made 76--821-07---41 PAGENO="0162" 158 FEDERAL OIL SHALE PROGRAM more flexible so as not to discourage development of this resource by restricting the entry of a broad variety of companies and other groups into the research and development of oil shale. We therefore recommend that the rules be further clarified and broadened to offer prospective applicants a choice of the following alternatives: (a) We believe that the regulations as written are unworkable as discussed above because of the complexities introduced by tying the research and commercial phases together. Nevertheless, if they are modified to eliminate some of the problems discussed above, there may be some who would desire to proceed under such a program. (b) We recommend that tracts of public lands be made available solely for research purposes, limited in size, with the provision that once the research program was completed, the premises would revert to the United States. These tracts should be made available Without cost, or at `a nominal charge, to any qualified party desiring to do research, with such party retaining all patents and research project. The benefit to be derived by the United States would be encouragement of research and development of this vital natural resource. (o) There may be some companies whO now would like to have the oppor- tttnity to acquire commercial oil shale leases on specific tracts and proceed with construction of faciljties for production of shale oil without the nèces- sity of doing further research as required under the rules as proposed. Leases could be put up for sale on a competitive bidding basis similar to that now used for off-shore leases. For the protection of the government and the lessee, the leases should be on a prescribed lease form. Reasonable annual rentals or other payments could be established which would be sufficiently high to pro. vide an incentive for early development by the lessee. Such rentals would not be payable once commercial production was established. The lease term sbonld be for five years and so long thereafter as diligent operations for the production of shale oil are being conducted. The rentals and relatively short primary term of the lease would discourage speculation and foster con- `tinuous progress toward production. The regulations should provide adequate provisions to permit the inclusion of all commercial `leases, in whole or in part, in units which are subject to plans for development similar to those now in use for federal oil and gas leases. Any lease so committed to a unit would be extended beyond its initial term while the unit remains in existence, in accordance with a plan of development approved by the Secretary. Some of the suggestions which we have made in these comments may require the enactment of legislation to clarify and supply needed authority for the Secretary. To the extent required, legislation to accomplish this purpose should be drafted and introduced in, Congress. II. Imdepeadent Petroiewn As~sociation of America A. Executive Order No. 5827 should be continued until appropriate legisla- tion is enacted that will insure a program for the orderly, fair and simultaneous leasing of the public oil shale lands. B. Such legislation should encourage development of the public oil shale lands under our free enterprise system `by private industry without Government financial assistance or subsidy. 0. The size of leases awarded under the program should be limited, and much smaller than provided in the present law, in order that private firms, both small and large, will be able to participate in the leasing program. A multiplicity of operators, both large and small, will promote competition and eliminate the threat of monopoly in this potentially vast energy source. D. This Committee, and other appropriate committees of the Independent Petroleum Association of America, must be continuously alert to developments in oil shale and Its impact on the conventional crude oil and natural gas industry in the United States. INDUSTBY 1. Allied Chemical Corporation -June 28, 1967 Suggests amendments and modifications to prevent Interference with sodium leasing in Sweetwater County, Wyoming, and modify definition of oil shale [3170.0-5(h)] to exclude lands containing trona unless oil shale development would not adversely affect in any way the trona values. PAGENO="0163" FEDERAL OIL SHALE PROGRAM 159 II. Amerada Petro~euin Corporation-August 9, 1967 A. The regulations should seek to protect public health, scenic values, wild- life or whatever national resources may be involved. In the case of the proposed regulations, however, we think the effort to protect and conserve other values has been carried to the point where effective development of an oil shale industry may actually be inhibited. B. Under the proposal, the lease applicant is required to have a fully prepared program for the development of the acreage at the time he makes application. If the lease is granted, it will contain a limitation on the number of acres which the lessee will be allowed to use during the research term. If the lease is extended during the commercial production term, another limitation will be imposed. These limitations, the extent of which are not known to the lessee at the time he makes his application, may be entirely inconsistent with his concept of what he deems necessary for the successful completion of the project. The possibility of their being unduly restrictive is bound to be a de- terrent to active bidding. C. The provisions with respect to disclosure of information developed during the research term, the compulsory licensing of patents, and particularly the opening to the public of all books and records, is unrealistic in the extreme. D. The legitimate interest of the public can be protected by the manner in which tracts are put up for leasing, by regulating their size and location, by providing suitable royalty schedules, by fixing terms which are long enough to allow development as economic conditions develop while not encouraging Inac- tion and speculation. Sufficient restrictions can be imposed to guarantee protec- tion of other economic and esthetic resources. III. Bear Creek Mining Compan?J-August 7, 1967 A. Procedures for selecting research and development proposals may eliminate favorable avenues of work. B, The regulations are unnecessarily restrictive as to the mechanics of the possible testing program. The details of goals, plans, personnel, financial and technical capability must be submitted with the lease application; modifica- tions must be approved. C. Time restrictions on the research lease, to be set by the Secretary and not to exceed ten years, are unnecessarily cautious and thereby may eliminate some research which may be fruitful although the odds are adverse now. P. The proposed gross value royalty scale which may range from 3 to 50i% is excessive and will have a tendency to discourage venture capital. The royalty rate should be on a graduating sliding scale based on time with the upper limit no higher than the present Federal petroleum royalty rate of 12'/2~%. B. The "open book" aspects of the regulations run counter to the security policies common to any industry. F. The main objection we have to the land exchange program is that the lands obtained in trade in the "blocking up" plan bring with them many of the regulations of the public lands. Questions that remain unresolved are: 1. Will any consideration be given to prior heavy spending and developed capabilities? 2. Will preverence be given lease applicants according to time of filing? 3. Will information filed with subsequently rejected applications be held confidential? 4. Should not a company be assured some period of process exclusivity when it has phased from research and development into commercial pro- duction? 5. What degree of selectivity may the lessee exercise in selecting lands when it goes commercial? 6. Will provisions for water rights be made for areas covered by specific leases? Beer Creek Recommends: 1. The time for commenting be extended to November 9, 1967. 2. ~Public hearings be held in the areas involved during September and October to solicit the views to all public land users in these areas. 3. If recommendations 1 and 2 above are not followed, then the whole matter be referred to the Public Land Law Review Commission for its con- sideration and recommendation. PAGENO="0164" 160 FEDERAL OIL SHALE PROGRAM Beer Creek's concluding remarks It appears that the Secretary proposes that industry should undertake to finance and perform specific government-conceived and directed research projects under a program that offers little incentive in the form of exclusive rights (if not permanent at least temporary) on profits commensurate with risk. The apparent amount of Departmental control of the oil shale industry under this program would be onerous to all except possibly the public utilities. The proposed regulations would probably promote effectively only one of the listed purposes-it would prevent speculation and windfall profits. The single most effective measure the U.S. Government could take to promote the development of the oil shale industry aside from straightening out the land problem would be to have the percentage depletion alloWance apply to the retort product rather than to the shale itself, as now, and to have it increased from the present 15% to the 271/2% applicable to the petroleum industry. IV. Cameron and ,Tones, Ineorpor~ted-4ugust 14, 21167 A. Cameron and Jones agree with the decision of the Secretary of the Interior to open the Feder~d oil shale lands for lease. An opposing viewpoint has been advanced that there are adequate lands in private bands to begin shale oil pro- duction if the owners choose to do so; therefore, the Federal lands should be reserved for the future. In their view, the further withholding of Federal oil shale lands will create an artificial shortage, generate windfall profits for those who hold non-federal lands, limit competition, and generally inhibit the development of oil shale. They agree fully with the concept of a limited leasing program at the present time. This is consistent with the need for acquiring industrial experience before com- mitting substantial reserves for development. After careful study and consideration of the subject, particularly the leasing procedure in the proposed regulations, we conclude that the non-competitive selection of a lessee is administratively unworkable and that a system of com- petitive bidding should be formulated. In the interest of encouraging early development and providing an off-set to the cost of the extensive and expensive research still ahead, they suggest that for the initial lease offering of 30,000 acres one-half (`/2) of the bonus payment be credited against royalties payable on production during the first 10 years of the lease term. The effect should be higher bonuses, earlier production anj a means for the operator to recapture his investment more rapidly. In summary, they believe a system of competitive bidding should be used to award oil shale leases. These leases should not be limited to research and develop- ment but should encourage production. A competitive leasing procedure along the lines discussed will benefit all parties-the government, the lessee and the public. It will be simple and straightforward to administer. It will provide incentive for early development. It will be a fair and impartial method of selecting the successful lessqe. It Will provide maximum compensation to the owner (the public) con- sistent with the competitive position of oil shale products in the marketplace. Cameron and Jones feel that there is no disagreement about the need for addi- tional research on oil shale despite the not inconsiderable knowledge of oil shale technology that already exists. But should the primary aim of the present leasing program be research to the virtual exclusion of commercial development? They suggest a better balance of the two phases. First, some organizations are well advance in their knowledge o~ techniques to mine and process oil shale, or have access to such knowledge through licensed processes. They should be given equal opportunity to lease public lands. Second, Cameron and Jones are concerned with the lack of assurance to the lessee that commercial production will be allowed. When and how the commercial phase begins should be a business decision of the lessee if he meets reasonable standards of conservation and otherwise complies with the terms of the lease. Third, we suggest that the plan for research and its execution are too closely controlled. - We strongly recommend a lease that allows and encourages production when- ever justified in the opinion of the lessee. No specific research requirements should be imposed. They hope that the parts of the regulation dealing with disclosure and patents will be changed to promote a propietary competitive technology. PAGENO="0165" FEflERAL OIL SHALE PROGRAM The following are specific recommendations regarding the various aspects of research, disclosure, patents and technology: 1. Limit government ownership of patents to instances where direct gov- ernment expenditures are involved; however aim government-sponsored research at subjects of industry-wide concern such as conservation, waste disposal, resource studies, and chemical-physical data. 2. Provide in the lease for the confidential disclosure of research results and other data needed by the Department for the wise administration of the resource. 3. As noted previously give the lessee wide latitude in the planning and execution of research. Royalty-The case for moderation The royalty provision of the proposed leasing regulation is unique and dis- criminatory-it will discourage shale oil production from Federal lands. If a graduated net profit royalty has merit it should be applied uniformly to all minerals, especially to the fuel minerals with which shale oil must compete. The point of these figures is this. To compete successfully for capital funds oil shale must necessarily be as profitable as other industries. It is their belief that minimal royalties will be required at the present time to encourage development of the Federal lands. They suggest a royalty pro- vision comparable to that for Utah state lands of 5% of the gross value of crude shale oil at the retort, or the well head in the case of insitu retorting, for the first 5 years of production with an increase of 1% per year thereafter, up to a maximum of 121/2% at the option of the lessor. Other minerals could be treated in the same manner. Cameron and Jones see no need to introduce such concepts as government- controlled technology or profits participation to protect the public interest. Pro- visions to encourage competition in all phases of the endeavor-land acquisition, research and production-will best serve the industry and the public. V. Cities Service Oil Company-August 2, 1967 The time is propitious for stimulation of oil shale development by a public lands leasing program and concur generally with the stated objectives of the proposed amendment, the May 7 draft of regulations appears to be too restrictive to be attractive to private industry. Cities Service Oil Company believes the proposed R&D leasing program should be altered to- (1) develop a basis for leasing of Federal oil shale lands by competitive bidding using a bonus system with fixed royalty; (2) discourage lease-holding for speculative purpose by requiring annual expenditures, on a predetermined scale, for R&D purposes until the achieve- ment of commercial production; (3) provide specific terms for holding R&D leases with commercial term to start upon satisfactory completion of research program and to continue as long as paying quantities of deposits are produced; (4) require disclosure to the Government (to be held confidentially) of only such technical data as may be necessary to assure that the lessee is diligently and efficiently pursuing his research operations, and permit the leasee to hold and license patents under the same conditions as any other patents, and assignment of patents. VI. Continental Oil Company-June 7, 1967 Their reaction is not favorable. The Continental Oil Company considers that the rights to be granted are circumscribed with restrictions and conditions to such an extent that sufficient economic incentives will be lacking. Conoco believes that a competitive bidding method must be devised for making public domain shale oil lands available. Criteria should be established under which prospective bidders may qualify. Acreage limitations and all other re- strictions and covenants should be liberal enough to attract capital in an inno- vating and highly competitive economy. VII. Ceonuclear Corporation-August 11, 1967 CER Geonuclear Corporation is not an oil company and does not have a direct interest in oil shale leasing. Nevertheless, as a sponsor of Project Bronco, a proposed nuclear experiment in oil shale, CER does have a vital concern with the proposed rules. PAGENO="0166" 162 FEDERAL OIL SHALE PROGRAM A major omission from the proposed rules is that they make no provision for a company, or group of companies, which develops the technology outside the framework of the proposed rules to obtain commercial oil sbale leases. It should not be necessary for a company or group which successfully completes research and development to go through a two-stage leasing program. A second weakness of the proposed rules is the provision for publication under 3172.9(d). "We are certain the Department's intent is to make Information on any research breakthroughs available to the public as rapidly as possible." The most objectionable feature of the proposed rules is the provision which gives the Government, in the absence of exceptional circumstances title to all inventions. The Geonuclear Corporation suggests that patent o~'nership reside in those who make the inventions with a royalty-free license to the Government and licensing at reasonable royalties to third parties. VIII. Gulf Oil Corporation-June 14, 1967 Insofar as shale oil production is concerned, the regulations proposed by the Secretary of the Interior and released on May 7, 1967, do not, provide the proper basis on which to conduct the i~esearch necessary to make efficient, eco- nomic development possible. Comments on the proposed regulations are as follows: 1. Oil shale lands, by definition, include minerals which are components of the rock but exclude mineral deposits which can, in the opinion of the Secretary of the Interior, be mined without damaging the oil shale beds. We feel many legal and operational problems are inherent in an attempt to isolate a deposit of minerals interbedded in the shale oil. 2. There appears to be no real assurance that, after spending up to 10 years on research, the term of the lease will be extended to allow the oper- ator to proceed with development. 3. Under the proposed regulations, no operator is allowed more than a total of 5,120 acres. This has the effect of encouraging a large number of relatively small operations and hence makes economies of scale very difficult. 4. The proposed regulations suggest a sliding scale royalty based on the percentage which taxable income bears to investment. Neither royalty nor depletion are allowed when computing taxable income. This departure from convention places royalty more in the category of an additional tax than a royalty payment. 5. The provisions in the proposed regulations concerning disclosure of in- formation and title for patents are particularly onerous. Making all data and patents available for public use destroys any advantage an operator may have. The Gulf Oil Corporation believes that development of a resource such as shale oil by the mining and retort method, will be difficult to justify economically under the best of circumstances. In their opinion the regulations proposed by the De- partment of the Interior do not provide the incentive necessary to attract private industry into conducting the research and making the tremendous investment re- quired for development. TX. Humble Oil Refining Company-June 8, 1967 A. The Secretary is to be commended for taking the Initial step which could result in the development of the federally owned oil shale reserves. However, Humble believes that the proposed regulations do not provide adequate incentive for private industry to commit its technical and capital resources to the develop- ment of such reserves. Humble is particularly concerned that the proposed reg- ulations embrace certain principles that would inhibit the normal working of the free enterprise system in the development of this natural resource. Development of shale oil production should be controlled hy normal economic forces governing competition among fuels. The free interplay of empetitive pres- sures among doniestic energy sources continues to be the best means of supplying the needs of the public at the lowest cost. Bidding for leases should be open to all potential participants on a competitive basis, with no discrimination in respeet to firms in any narticular industry, size category, or other classification. Unitization of lands into conservation or pro- duction units should be permitted. The holding of leases for speculation should be discouraged by requiring the expending of appropriate sums for research and development during each year of the lease unti' commercial production hats been achieved. Any failure to carry out diligently the agreed upon program should be grounds, suhject to court review, for forfeiture and cancellation of the lease as provided for in the regulation. PAGENO="0167" FEDERAL OIL SHALE PROGRAM 163 B. Specific Commei~ts: 1. 3170.0-1. Purpose. The objective to "encourage participation by companies not favorably situated with respect to access to reserves of the minerals present in oil shale" could result in discouraging those companies which in the past have taken the initiative to develop research and technology for the exploitation of oil shale and related minerals. The regulations should encourage and foster re- search and development efforts by any and all qualified individuals and companies. 2. 3170.1. Designation of Available Lands. This section precludes industry from having any voice regarding lands that will be designated for basing. The location of the lands is of utmost importance from the standpoint of terrain, ac- cessibility, availability of water and other utilities and of constructing and op- erating plants for research and commercial operations. Also, limiting leasing of oil shale lands to not more than 30,000 acres, presumably divided among three states, would unduly restrict broad industry participation in oil shale develop- merit. This section should provide that from time to time, the Secretary will designate reasonable amounts of lands, with clear title, based on nominations made by qualified individuals and companies. The regulations should not contain a limitation as to the total amounts of land which the Secretary may so designate. 3. 3171.2-3171.3. Form and Contents of Application and Considerations to be Used in IIJ valuating Applicants. These sections relate to the qualifications of an individual or company for acquisition of an oil shale lease by application based on an acceptable research program and the need by the applicant for both the acreage and the products therefrom. Those portions of the sections requiring dis- closure of ownership in private lands, divulgence of confidential reserve informa- tion, detailed projections of research and commercial operations, go far beyond what is necessary to determine capability and qualifications. The principle that au applicant's need for reserves should be a factor in determining whether an applicant would be granted a lease is a real cause for concern. The merits of the proposed plan of research and development and applicant's ability to carry out that plan should be the determining factors in granting or failing to grant a lease. Oil shale leases on federally owned land should be awarded by competitive bidding with the requirement that the snccessful bidder peform a reasonable amount of research and development leading to commercial production. 4. 3172.2. Term of Lease. The research term is indefinite and extension of the commercial production term is solely dependent upon the discretion of the Secre- tary. The lease terms proposed are not appropriate for the competitive bidding sys- tern advocated by Humble, and the lease terms should be modified as follows: (a) Research Term.-Afl leases and notices of lease sales should provide for a specific research term. Such research term may be extended by the Secretary, provided the total term, as extended, does not exceed ten years. The leases should be subject to termination after appropriate court review in the event research and development obligations are not satisfied. (b) Commercial Production Term.-Tbe commercial term of the lease should commence upon satisfactory completion of the work to be performed during the research term and should continue for so long thereafter as mineral products are produced from oil shale in paying quantities from de. posits in the land. 5. 3172.3. Acreage Designation and Limitatio~is. This section is too restrictive on the rights of the lessee because the Secretary would have the sole right to select the research site and determine the quantity of mineral deposits needed for commercial production and to select the area of commercial operations. The lessee should have the right to select the reseach site and should be per- mitted to hold and develop the total acreage as described in the lease. The regulations should provide that the Secretary may permit the inclusion of additional acreage in the lease, provided the total acreage covered by the lease does not exceed the legal limitation. 6. Royalties. The proposed royalty schedule would stifle the development of avilable shale oil and associated minerals industry on federally owned lands. Such a scheduled based on a graduated percentage of net income, together with the current federal income tax structure, would operate to discourage their in- vestment of private capital. Royalty should be payable only on products sold or used off the premises. The royalty payments should be waived during the first five years of the research term as permitted by the Mineral Leasing Act. 7. 3172.9. Other Provisions. Portions of this section which require that dis- closures of technical information be made public and that patents be assigned to PAGENO="0168" 164 FEDERAL OIL SHALE PROGRAM the Federal Government would destroy one of the most powerful competitive forces that could be brought into the oil shale development. The lessee should be required to make available to the Federal Government only such data and information as is necessary to assure that the lessee is con- ducting a prudent and efficient operation. All technical information so acquired should be held confidential by the government during the research term. 8. 3172.10. Antitrust Consultation. This regulation is unnecessary because of the limitations contained in the Mineral Leasing Act and should be deleted. 9. 2244.1-7. Ilkvchange 0)' Oil Shale Lands. Subparagraph (b) (1) is too restric~ tive in requiring that the oil shale lands to be exchanged have similar geologic and physical characteristics. The criterion should be that the offered oil shale lands be of a value approximately equal to or exceeding the value of the selected public land. I. Ma/rat hon Oil Cornpanqj-August 11, 1967 A. Marathon concurs with the basie purpose of the proposed regulations which make available a limited portion of the public domain for research and the devel- opment of oil shale technology. The development of techniques for commercial production of oil from oil shale is a necessary prerequsite to the determination of the need form statutory changes and the promulgation of regulations relating to commercial production. The development of such technology through the com- petitive research efforts of the private enterprise system is the best method to accomplish this objective. Many of the detailed provisions of the proposed regulations inhibit rather than encourage industry participation in shale oil technological development. The pro- posed regulations are too preoccupied with government controls and with pro- visions to insure revenue to the government from the research efforts. Marathon favors regulations which require a company that acquires a tract for research to invest sums sufficient to demonstrate a bonafide intent to make a meaningful effort to develop oil shale technology; tjiey further favor a require- ment that such company meet certain work progress requirements. As previously indicated, many of the proposed regulations will discourage rather than encourage industry participation. B. Specific Comments: 1. Royalty.-The regulations pertaining to royalty are not realistic. In order to encourage company participation no royalty should be required until at least five years after commercial production; thereafter the royalty should be mod- est-i.e., five percent of the production at the mine or welihead. 2. Patents.-The provision in the proposed regulations that the United States acquires title to all inventions will discourage participation. As an incentive the participant should have the right to retain title to all inventions subject only to the requirement that they be licensed to others on a nondiscriminatory reasonable royalty basis. 3. Term.-The lease should be for a fixed term of years and as long there- after as oil shale is commercially produced. Provision should be made for an extension of the fixed term on a showing that research has proceeded diligently and that there is a reasonable possibility that such research will prove success- ful or that commercial production can be obtained during the extended term. The uncertainties contained in the proposed regulations with respect to the lease term should be eliminated. 4. Acreage-The proposed regulations indicate that a reduction in acreage may be required if commercial production is attained. Few companies will he willing to undertake a research project of this nature without knowing in ad- vance the number of acres that it will be entitled to hold during both the re- search and commercial phase of the lease. It should be recognized that one of the most important facts to be developed through research is a determination of the optimum-sized tract for oil shale development. The acreage allowed a par- ticipant should be large enough to permit research and experimentation in this regard. 5. Need.-The proposed regulations provide that one of the bases for evalu- ating applications for leases is the applicant's need for lands to conduct re- search. It is submitted that this is a poor criterion. Applications should be granted to any applicant that indicates it has the financial and technical ability to conduct a good research program. 6. Multiple Resources-It is not clear from the proposed regulations whether nacholite and dawsonite are included in the definition of oil shale. This should PAGENO="0169" FEDERAL OIL SHALE PROGRAM 165 be clarified and if an applicant proposes a research program which is designed to develop a method for the extraction of minerals associated with the oil shale, that proposal should be given weight in considering the application. XI. Mobil Oil Corporation A. The proposed regulations Introduce some rather radically new concepts. Studies which the Mobil Oil Corporation has conducted has caused them to conclude that, with the increasing energy demand and with further technological developments, there is a high probability that there will be commercial produc- tion of shale oil within the iiext decade. B. Specific Comments: 1. Since the oil shale deposits are rather well defined both as to existence and probable quality, we strongly support the concept of competitive leasing. 2. Generally, the procedures which have been used in the leasing of offshore lands appear to us to be an effective and practical method of handling nomina- tions and bidding for leases. We should like to suggest, however, that sales should not be held too often and that nominations be limited in some manner. 3. We believe that any lease should cover an area up to 5,120 acres. This would provide a compact block to be worked for oil shale production which we believe would be the minimum size and the configuration for optimum development in the light of presently known technology. 4. We should like to see the elimination of lease provisions constituting a plan of development. At this time and in the light of present technology, definitive plans of development are difficult to determine. Furthermore, it would impose a `significant burden on those charged with the responsibility for making an award of a lease on competitive bids, and would cause continuing review of the status of lessee's compliance with the plan of development. We should like to recommend that in lieu of plan of development provisions in the lease form, the lease be for a term of ten years and as long thereafter as shale oil is being pro- duced therefrom. Coincident with our recommendation of a lease term, we should like to sug- gest that the Mineral Leasing Act allow inclusion of leases into units which are subject to plans for development. Any lease so committed to a unit would be extended beyond its term while the unit remains in existence (requiring (`om- pliance with the plan of development). Under this type of procedure, the Secre- tary would have the discretion of approving any such unit and the plan of development thereon, the lessee having to commit to undertake such plan of de- velopment. This procedure would allow the lessee to determine whether to commit to a plan of development at a time when the commencement of development is contemplated and could be definitely fixed. 5. We would recommend $2.00 per acre per year as the rental or minimum royalty requirements. 6. It is exceedingly difficult at this time to determine the proper royalty rate, particularly in the light of the effect on presently uncertain ecouomics of oil shale production. We feel that a royalty of 5% for the first twenty years of produc- tion with provision for adjustment of such rate by the Secretary of the Interior upwards to 10% thereafter would be a reasonable royalty. We have some con- cern how properly to fix the point of application of the royalty and determina- tion of market value for the purpose of calculating any such royalty. 7. The lease should include appropriate clauses such as, "force majeure", "right of surrender", no termination for temporary cessation of production and generally similar clauses to those found in present oil and gas lease forms. XII. Pan American Petroleum Corporation A. In their view, the approach taken by the current proposals will neither serve the national interest nor the private interest concerned with initiating an oil shale industry with venture capital. The general approach discerned in the proposed regulations is an outgrowth of a fundamental misconception concerning the nature of oil shale operations. This misconception involves the belief that, without the imposition of severe restric- tions by the Interior Department, tremendous profits, garnered almost risk-free, would come to private industry from the exploitation of Federal oil shale lands. This attitude is reflected throughout the proposed regulations (e.g. the royalty provisions of Section 3172.5, the stated concern for preventing "windfall profits", Section 3170.0-i, and the requirement that the oil shale lessee disclose to the PAGENO="0170" 166 FEDERAL OIL SHALE PROGRAM Secretary, fully and free of charge, all informations, reports and inventions arising out of the lessee's anticipated "highly profitable" and virtually "risk- free" venture in the field of oil shale, Sec. 3172.9). B. Pan American Petroleum Corporation has set out several matters which should help put the incipient shale oil industry in perspective. 1. The reserve estimates relative to Federal oil shale lands which range to sev- eral trillion barrels of oil, standing alone, are meaningless. 2. The large reserve estimates relative to Federal oil shale lands are by no means a measure of the "economically recoverable" oil present. 3. Even the best mineable beds of oil shale, testing over 35 gallons per ton, must realistically be considered a very low grade mineral resource. 4. Oil shale operations represent a high-risk investment industry. An indus- trial market for mined shale must await full scale technological development, with attendant high financial risk. C. Specific Comments: 1. Section 3170.1. Designation of Available Lands.-(a) This section allows the Secretary to specify a particular type of operation on a given site, but there does not sOem to be any compelling reason in the public interest why the Secre- tary should restrict in the first instance the types of proposals to be submitted; certainly, control in the Secretary permits meritorious projects to be encour- aged and contemplates the rejection of valueless proposals. It is submitted that the initiation of an industry is the prime objective, rather than the encourage- ment of theoretical or pure research. Moreover, regarding conservation princi- ples the richest oil shale deposits should initially be made available to furnish impetus to the commencement of an oil shale industry. The third sentence states that no more than 30,000 acres will be designated for lease. There does not seem to be any compelling reason for this restriction. 2. Section 3171.2. Form and Oonteats of Applications.-(a) Emphasis in this section should be directed to the formal qualifications of the applicant for lease, including, as well, minimal information regarding the technical and financial capai1lity and intention of the lessee to conduct bona-fide research. The requirement that an applicant for lease furnish information on other holdings of shale oil and petroleum goes far beyond what the Secretary should logically need to determine the lessee's qualifications and technological ability. 3. Section 3172.3. Acreage Desi~jncttionS and Limitations.-(a) (a) (d) The Mineral Leasing Act (and regulations) should be amended to permit up to 5,700 acres to be contained in any one oil shale lease, and an individual or com- pany should be given the right to hold an aggregate of 23,040 net acres, on a national basis. (b) This portion of Section 3172.3 states that "upon the issuance of any lease hereunder, the Secretary shall designate the part of the leased lands upon which the lessee will be permitted to conduct operations during the research term." This grant of authority is unduly restrictive, and it is suggested that the lessee should be permitted to select, at his discretion, the site deemed most suit- able for his research operations. (c) This part of Section 3172.3 provides in effect that the lease will be extended into the commercial production term only as to an area which contains the quantity of mineral deposits needed for commercial production; the Secretary determines the quantity of mineral deposits needed for commercial production. The apparent aim, here, is to require the lessee to invest for the maximum production rate in order to prevent the loss of some part of his lease, but the regulation as written does not quantify or describe "the mineral deposits needed for commercial production." One way to handle this problem would be to provide that the term of the lease would be extqnded for an area which contains, say, 50 years' worth of shale deposits geared to lessee's total refining capacity. Another approach, certainly having the virtue of simplicity, would be to permit the lessee to hold all of hi's original lease in the commercial production term for so long as production continues from the leased premises. 4. Section 3172.~. Rentc2s.-(a) The annual lease rental should be established at $2.00 an acre. Such rental, in place of the 50 cents per acre rental set out in this proposed regulation, would tend to eliminate or to reduce speculation in oil shale leases. 5. Section 3172.5. Royalties.-(a) The basic royalty is set out as "3 percent on the gross value, at the point of shipment to market, of the mineral products from the oil shale . . ." The royalty rate should realistically be set at a low figure to encourage the growth of an oil shale industry, and the basic rate of 3 percent, standing alone, is considered satisfactory. However, the term "gross PAGENO="0171" FEDERAL OIL SHALE PROGRAM 167 value" apparently does not contemplate that an allowance for plant processing costs will be provided. Nor, in our opinion, should royalty be calculated "at the point of shipment to market"; the royalty should not be computed on corn- pletely refined products. Royalty should be payable only on the value of oil recovered from the retort, and suitable allowance for plant processing costs should be provided. (b) Subparagraph (d), in our opinion, removes the incentive for efficiency on the part of the lessee, and eliminates any expectation that profits will markedly increase as the shale oil operation gets underway. This sliding-scale provision would discourage the growth of an oil shale industry. 6. section 3172.9. Other Provisions.-(a) (d) The Secretary shall have exclu- sive rights to publish research information developed by the lessee. (b) (e) The oil shale lease must provide that the United States will acquire title to all inventions made during the research term of the lease. (c) The provisions of (d) apd (e) are contrary to the competitive spirit of our form of economy, and, it is further emphasized, would act as a deterrent to the commencement of an oil shale industry-the temptation would obviously be present for one to wait for somebody else to do the research work. The lessee should only be required to furnish to the Secretary, on a confidential basis, a limited amount of data to indicate the lessee's bona-fides and his pru- dence and efficiency in conducting research. Patents obtained by the lessee should be held and licensed by him in just the same manner as any other patents. 7. Proposed Ecoohange Regulations (43 CPR, $ubpart 2244) $ectiou 2244.1-7 (c) (3) .-It does not seem reasonable for the applicant to have to enter into a written agreement covering the particulars named as to his own privately-owned shale lands, as a prerequisite to the consummation of the exchange sought by him. D. Conclusions: 1. All leases shall be awarded on the basis of the highest cash bonus offered in sealed bids. 2. Primary lease term shall be fifteen years and as long thereafter as production is obtained, or additional operations for developing production are carried on continuously. 3. Annual lease rental should be established at $2 an acre. 4. Royalty should be established on a sliding scale basis of 5% to 7'/2%; to encourage early development, the royalty should be at the rate of 5% of the value of products recovered and sold during the first ten years of the lease term, then increased %% annually until the 71/2% maximum is reached. 5. Lease should reflect that royalty is payable only on the value of oil recovered from the retort, and sold; and suitable allowance for plant processing costs should be provided. 6. No single lease shall cover more than 5,760 acres, and each shall be in com- pact form. 7. No individual nor company shall hold an aggregate of more than 23,040 net acres, on a national basis. 8. No acreage shall be offered for lease when it is known to the Government that the acreage is burdened with mining claims. 9. When it is discovered that leased lands are burdened with mining claims, all lease terms and obligations shall be suspended until the claims are eliminated; in such cases the lessee and the Government shall cooperatively act promptly and diligently to dispose of the claims. 10. Lessee should have the right to relinquish all or any part of a lease at any time. 11. Operators should be permitted to participate in joint leasing bids. 12. Leases should contain the right to unitize or cooperate in development con- tracts for either exploratory or development operations. 13. Leases should include customary "force majeure" provisions. 14. Overriding royalties in excess of 21/2% should be prohibited. 15. "Multiple use" as it pertains to oil shale development should be clarified, particularly with regard to the "in situ" method versus "mining operations under oil shale leases," and with regard to the "in situ" method when used in opera- tions under conventional oil and gas leases. XIII. Penncooil Uompany We are firmly convinced that the national public interest in the economic de- velopment of the natural resources of this country will be advanced by the de- velopment of oil shale reserves within the private sector of the economy, subject to reasonable regulations in the public Interest. The development of natural re- PAGENO="0172" 168 FEDERAL OIL SHALE PROGRAM sources is a venture in which publicly-owned companies, public investors and con- sumers all have a stake. As the regulations are presently drafted, the Pennzoil Company is convinced that private industry would be unable or unwilling to dedicate the large sums of capital and the technical talent required to carry out a research program looking to the development of oil shale reserves. Requisite incentives for this effort are hampered by manifest uncertainties in the proposed regulations. Uncertainties exist as to what areas will be designated for research develop- ment. The regulations should provide for selection of acreage by any qualified applicant and the 30,000-acre limitation should be deleted. Uncertainties exist as to the form of the lease. A reasonable form should be prescribed. The research term is uncertain in duration and there is no certainty that the Secretary will extend the terms of a lease to permit commercial production. The royalties of the United States are uncertain in amount. These royalties should be fixed at a level and reasonable amount. The benefits to be derived by private industry from research are uncertain in that the United States will acquire title to all inventions and all information must be disclosed. This feature of the regulations should be rewritten to provide for a fair license to others by any company developing an invention. XIV. Phillips Petroleum, (Jon~pany A. As a general criticism of the regulations, they do not provide incentive to attract investment and application of the capital, research facilities and personnel of the caliber which would offer possibilities of success. The proposed rewards are nebulous and are not equated to the risks to be undertaken. Patents, processes and technical information developed oii the gov- ernmental land cannot be retained by the developer; royalty rates are extremely onerous and there is no real assurance that, after up to 10 years of effort, the applicant will even peceive a shale lease, nor are there any assurances as to the size of the lease which may be awarded. The limitation of the program to 30,000 acres `of land is unwise. This is less than six times the individual limitation of 5,120 acres. Since each applicant would surely require the maximum-size lease allowed by law in order to justify the tre- rnendous expenditure envisioned, these regulations would effectively limit the Secretary to five or six leases. Satisfactorily definitive standards are not provided touching (a) whether the lease will be extended into a commercial production term and (b) the area to which the lease will be extended for a commercial term. It appears that only those lessees who have been eminently successful in developing a "commercially feasible" processing method effecting "optimum recovery of the mineral to be produced" while preventing or minimizing damage to water, air, scenic values, etc. will be entitled to a commercial lease. It would be far better to have the ground rules laid out in advance than to ask the applicant to rely on a retro- spective evaluation of an initially risky investment. The requirements in the regulations that all technical information be made public immediately and that all patents be assigned to the federal government are highly objectionable and deterrent to the commitment of private research funds, facilities, and technical talent to the needed development of oil shale technology. Patent and technical know-how rights should reside with those who have paid for their development. To impose additionally the onerous provisions for sliding scale royalties is most discouraging. Under the proposed wording it is doubtful that any credit could be taken for research costs in determining the "investment" which fixes the royalty rate. The proposed royalty scale resembles an additional income tax, which could take up to 50% of net income computed without allowance for royalty or depletion. In the sliding scale, royalty should be eliminated. The government already has a heavy weapon against excess profits in its right to readjust royalties 20 years after the date of the lease. Section 3170.0-5 leaves it unclear as to when an oil shale lease will cover dawsonite, nahcolite and other minerals as they occur in the Piceance Basin. It would also seem desirable to give the oilshale lessee a preferential right to a lease on other minerals which are separately minable in order to avoid occupancy and interference problems. PAGENO="0173" FEDERAL OIL SHALE PROGRAM 169 Section 3171.2(c) (11) appears to require a disclosure of conventional crude oil reserves. This unnecessary and irrelevant requirement should be deleted. Section 3172.2 (b) provides for a commercial production lease, "for so long as mineral products are produced from oil shale In paying quantities." Presumably, this would be interpreted as not requiring forfeiture in case of a temporary cessa- tion of production. However, provision should be made for a term certain as a transition between the research term and the production term to allow the com- mencement of commercial production. Section 3172.3(b) : It appears to the Phillips Petroleum Company that the lessee should have the entire leased premises available for its operations provided it complies with standards stated elsewhere in the regulations with respect to minimization of pollution of air and water and protection of scenic and esthetic values. XV. ~hefl Oil Company A. Shell believes that the proposed regulations represent a positive step toward the development of this nation's oil shale resources; however, they are concerned over the following point and suggest they be changed to provide the necessary incentive for the risk involved. 1. There is considerable uncertainty as to the amount of acreage that would be granted to a company after it completed the research phase. The maximum amount is clearly stated (5,120 acres), but the criteria for determining: (a) whether a research lease will be extended into the commercial production term, and (b) how much land in addition to that part of the R&D lease used during the research term ultimately can be obtained. 2. The provisions dealing with patents and disclosure of information seem so stringent as to interfere with the timely development of oil shale. The incentive to develop new techniques is limited by the requirement that results of research become public domain immediately. Free play of competition would encourage the development and simultaneous evaluation of several recovery methods. A term of non-disclosure after the R&D phase or the establishment of equitable licensing arrangements would be necessary to encourage competition. The proposed amendment to the regulations under the Taylor Grazing Act to allow for exchange of privately owned oil shale lands is a most worthwhile revision of the regulations and the Shell Oil Company supports this proposal. XVI. ~ino1ctir Oil and Gas Company A. Sinclair feels that the proposed leasing regulations would require a leesee to give up so much of the technical know-how and income from a project on government land that there is little likelihood that any company or consortium would invest millions in research to develop a proces:s for a commercial lease. They believe the regulations are so indefinite regarding granting of commercial leases that there is no incentive for acompany to undertake a development project. 31701 states that "The Secretary will * * * publish notices * * * designating areas of oil shale bearing land * * * which will be made available for leases for research and development and for subsequent commercial operations * * *" 3172.3(c) states, "At the time for the grant of any extension of the term of lease as provided in section 3172.2(b), the Secretary will determine the quantity of mineral deposits needed for commercial production, allowing reasonable reserves." Sinclair interprets these statements as saying that government representatives will make the decision as to when the company could move to construction of a commercial plant, and the commercial life and size of the plant. Sinclair wishes to recommend that award of a lease on a limited area for research and development carry with it an option on a specified tract for expanded commercial operation. The decision to go commercial should rest with the organi- zation. The company should not suffer the additional hazard that Interior will apply criteria of success different from industry in general. 3171.2(c) (11) requires "a description of the reserves owned or controlled by the applicant of oil and other minerals believed present in the land applied for.". This statement needs clarification. 3172.2(b) states that the Secretary will extend the term of the lease to permit commercial production if certain tests are met. These tests are not spelled out with respect to "optimum recovery of minerals" and air and water pollution. PAGENO="0174" 170 FEDERAL OIL SHALE PROGRAM 3172.3(c) states that "the Secretary will determine the quantity of mineral deposits needed for commercial production, allowing reasonable reserves." This lacks definition as to project life and thus precludes definitive economic analysis. 3172.3(d), It is recommended that this be clarified to state that a "net" interest of no more than 5,120 acres in United States oil shale leases may be held by a lessee at any one time. 3172.5(b) Sinclair recommends clarification because this regulation could promote inefficiency by forcing intermediate sales and precluding integrated plant complexes. 3172.5(d) states the royalty rate as a percentage of net income related to depreciated original cost. The disappearing base would have the effect of putting much of the net income into the high royalty bracket near the end of a project. The total portion of net income going to federal income tax plus royalty could reach 80 to 90 percent for a project having even a modest profitability before royalty. 3172.9(d) Sinclair feels that the lessee should own the data and be able to use or sell them without government restriction. At most, the Department of In- terior should receive reports to show due diligence in prosecuting the research, and these should be held confidential for at least five years. They would not object to a requirement of licensing at reasonable royalty rates after some wait- ing period. 3172.9(e) This is one of the most critical points for private companies and investors. It would seem to place a premium on waiting and letting others do the early development. It basically says that the lessee may make develop- ment investments of many millions, and then must file all the results away. The "proper showing of exceptional circumstances" appears to be a formidable obstacle. There are a number of paragraphs in which the la~iguage leaves doubt as to the true intention of the Department of Interior. An appendix is attached to Sinclair's comments in which these questions are raised. With reasonable modification, the proposed regulations can become the basis for private development of a healthy shale oil industry ~ ith adequate safeguard of the public interest. Sinclair feels the regulations, in their present form, are too stringent to foster private investment in development on public oil shale lands. XVIII. ~$un Oil Company A. Comments on Sun's position are listed separately by major section of the proposed regulations. Sun Oil Company concurs with some of the stated purposes of the proposed regulations. Each applicant for leases should be conseidered on its own merits. Each appli- cant should be permitted to operate with a minimum of external control. Any oil shale policy should be formulated with conventional crude oil produc- tion practices in mind. B. Application for Leases: 1. Sun is concerned that the proposed regulations on applications for a federal lease indicate (3171.2(c) (7)) that it would be necessary to provide information concerning interests in non-federal oil shale land. Such a provision in a program to provide leases for research on federally-owned oil shale might tend to favor individuals who do not have access to privately held acreage. The same objection applies to one of the stated objective~ (3170.0-1) which is to "encourage partici- pation by companies not favorably situated with respect to access to reserves of the minerals present in oil shale." No company should be penalized or excluded from participation merely because it had obtained shale oil leases on its own initiative. Also, Sun Oil is uncertain of the requirements which would have the applicant describe the reserves owned or controlled (3171.2(c) (11)). Sun feels that such information is not germane to the issuance of a research shale lease. in reviewing the proposed regulations (3171.2(c) (12)) covering commercial operation if research is successful, it is our belief that the amount of detailed description is unrealistic. C. Miscellaneous Provisions: 1. Since no form of lease is prescribed, any actual lease or development con- tract for a shale research program will have to be analyzed as to its form and terms. A Standard lease form is desirable. PAGENO="0175" FEDERAL OIL SHALE PROGRAM 171 2. Section (3172.2(b)), This section should be re-worded: "Upon the request of the research lessee, the Secretary will extend the term of the research lease providing the terms of the original lease have been fully complied with and * * *~" The determination of whether the lessee has conducted research activity substantially in accordance with the plan submitted, for the purpose of extend- ing the terms of the lease, is solely with the Secretary. It is difficult to predict the profit potential under the proposed regulations since broad discretionary powers are reserved for the Secretary. A company's willingness to commit the investment necessary for commercial production should be the basis for determining the economic feasibility. The Secretary can require optimum recovery of shale oil and other minerals. The requirement needs clarification since it could be so rigidly enforced that economic production would be impossible. The Secretary is to designate that part of the leased lands upon which the lessee will be permitted to conduct operations. This section (3172.3(b)) should be withdrawn since the requirements elsewhere for the protection and conserva- tion of the surface area will afford the public interest the protection to which it is entitled. Another section (3172.3(c)) which concerns us is the granting to the Secretary the right to determine the commercial or a market demand for oil shale products and that the commercial extension of the lease area is to be governed by such commercial need. Shale oil and its products should be allowed to compete on the open market with crude oil from conventional production. Section 3172.5(d) seems to be unreasonably high and may well discourage in- vestment. Sun strongly favors a straight royalty on each barrel regardless of total production or total profits. The proposed requirements for a lease bond specify that it not be less than $100,000. There is, however, no upper limit on the amount that may be required. The proposed requirement on the disclosure of research information (3172.9(d)) would make it impossible 1~or a company to develop technology, processes, or engineering design information without giving that information to all other companies. This provision completely removes the incentive for carry- ing out a proprietary research program. It also would handicap the research work itself if a company wished to make use of equipment or research work supplied by outside contractors. Section (3172.9 ( e)) : No company doing research work can expect to recover part of its cost of the research. This also detracts from the incentive to do re- search work and, is an unreasonable requirement and should be withdrawn. Al- though Sun agrees that the Secretary always can seek advice from the Attorne~ General, we do not believe the proposed regulation on antitrust consultation (3172.10) should be included under the Mineral Leasing Act. P Summary: Sun Oil Company believes that the general provisions of the Federal Regula- tions released by the Secretary of the Interior on May 7, 1967, will discourage rather than encourage the economic development of the oil shales. With only 30,000 acres currently available for lease and a maximum of 5,120 acres would not offer sufficient potential reserves to justify the expenditures necessary to develop techniques for extracting minerals from the shales. Further, it is Sun's observation that these provisions generally are in conflict with the concept of our free, competitive enterprise system which has proved itself repeatedly as the best approach to the successful solution to problems such as the ones that face us in the oil shale areas and which historically has been a key factor in maintaining the strength of our country. XVIII. Tecoaco Texaco considers that the public interest would be best served by the Govern- ment making available oil shale leases on a competitive-bid basis. The Depart- ment of the Interior has established such a procedure in administering the offer- ings of Federal lands under the Outer Continental Shelf Lands Act. A similar procedure to orderly development and result in the effective utilization of this great natural resource. CON5ERVATION onours National Wildlife Federation While not relating directly to the regulations, there are two basic questions which should be resolved prior to a determination that the oil shale lands should be offered for leasing: PAGENO="0176" 172 FEDERAL OIL SHALE PROGRAM 1. Since such a tremendous public wealth is involved, why does not the Government conduct the necessary research and development for the competitive economic extraction of oil from the shale? 2. If private research is to develop the process, is there not enough land already in private ownership to prove the value of such an operation? Extreme care should be taken that private research and development and the subsequent patents cannot be used to limit the development and competitive use of such a vast public resource. The proposed regulations, if leasing and land exchanges are considered to be in the public interest, do, in our opinion, contain the proper safeguards for fish, wildlife, and recreation, which will adequately protect the surface of the land after extraction has been completed. PIUVATE INDIVIDUALS I. Noel de Nevers, Associate Professor, University of Utah, The policy proposed on May 7 will satisfy neither the oil companies who are expected to take up the R&D leases nor those members of the public who fear a "giveaway," nor free-enterprise advocates who will dislike the profit-sharing aspect of the regulations. I think that all parties could be satisfied if the following policy were adopted: A. The Secretary should announce that there will be no leasing of the Federally- owned shale lands for some fixed time period; e.g. ten years. B. The Secretary should ask Congress to authorize a special tax rebate to those who develop commerically successful oil-shale production plants., using privately- owned shale-oil holdings. The applicant for this tax rebate would have to agree to license to any interested parties all his patents which bear on, the operation of the plant, at some predetermined, modest royalty rate. C. The Secretary should make some firm and binding statement that a barrel of shale oil shall be treated the same as a barrel of ordinary petroleum in calcu- lating oil import quotas. II. J. B. Mitchell, Mineral Leasing Consultant, Washi~ngton, D.C. Various provisions as well as the regulations as a whole as presently written, will not promote the development of the public domain oil shale deposits by private enterprise. In connection with the foregoing contention, particular attention may be di- rected to those provisions that: (1) impose a limit on the number of leases that may issue under the new regulations (five or six leases if they contain the maxi- mum acreage allowed by law) ; (2) fail to specify the size of leases that may issue; (3) impose a condition that obligates a lessee to relinquish an unknown amount of acreage and reserves at the end of the so-called experimental work; (4) impose a payment to the Government of a percentage of net profits; (6) tend to discriminate against lease applicants that presently own oil shale reserves (there are many such companies and a number thereof have already spent considerable money in research work); (6) provide that the Government while entrusted with supervisory responsibility and authority as to safety, pollution, conservation of the mineral and other natural resources, shall also have a mone- tary interest in net profits (these dual roles appear undesirable from a conserva- tion viewpoint), and (7) impose abnormal restrictions on the patent rights that a lessee can obtain by his own research expenditures. Unless the provisions just cited are eliminated or substantially modified, it seems reasonable to conclude that the proposed regulations if adopted will discourage and delay, rather than promote development of the Government-owned oil shale reserves. Section 3172.5.-I do not feel that it was the intent of Congress to authorize the Secretary to gamble on a net profit interest. The word "royalty" (or "royal- ties") when used in connection with interests created by mineral leases has a commonly accepted meaning of an interest in production or the value thereof free and clear of the cost of operations and production. Where exchanges are to be made as contemplated by Section 2244.1-7 of the proposed regulations for the sole purpose of improving the management and exploitation of mineral deposits, it would seem appropriate if the Secretary's statutory authority is to be free from being challenged, that more appropriate legislation should be sought. In lieu of the action contemplated by the proposed regulations, it is recom- mended that one of the following plans be adopted: PAGENO="0177" FEDERAL OIL SHALE PROGRAM 173 A. Select a small working committee representing the oil and gas and mining industries to meet and work with a compai~abie Government committee for the purpose of drafting regulations designed to promote in an equitable manner devel- opment of the Federal oil shale deposits. B. Cancel existing as well as pending proposed regulations `and substitute ttherefor new regulations based on a competitive leasing system similar to that used for OCS lands but modified to the extent necessary to conform to the pro- visions of the mineral leasing laws. Such regulations should ~~ontemplate and provide for: (a) a call for nominations by industry of the lands they would like to have offered for lease; (b) a pre-prescribed lease form that is specific as to the contractural obligations of a lessee with respect to term, rental, royalty and minimum development requirements, and (c) a flexible form of bidding that will permit bidding on more than one tract under a single advance cash deposit. Cancel existing regulations and issue non-competitive leasing regulations pur- suant to which: (a) leases would 1e awarded under a simultaneous drawing pro- cedure with an applicant having a choice of tracts if successful in drawing top priori'ty for more than one tract; (b) leases would bear a relatively high advance annual rental; (c) lease applications must cover specific parcels (5,120 acres if available in compact form) as described by public notice in advance of opening an area; (d) leases would bear a royalty of 3% of the aggregate value of the minerals extracted from oil shale at the point of shipment to market, or not less than 12'/2 % of the value of oil shale p'roduc'tion if marketed prior to extraction of the minerals, and (e) the form of lease would be prescribed by the regulations and J3e available for review prior to issuance of the regulations in final form. In rewriting the regulations, whe'ther for competitive or non-competitive leas- ing. I do not feel that the Government should attempt to control or manage future research work by private industry through the leasing system or otherwise. III. J. W. Smith, Laramie, Wyoming Objections to effects generated by the proposed regulations: 1. Existing oil-shale technology developed privately and independently can produce shale oil on a commercial or major pilot scale right now. 2. Completion of the research phase is deterred and impeded by the pro- posal's severe limitation of reward to the researchers. Upon development of a successful technology the non-researcher leases production land on the same basis as the risk taker. Patents could be granted successful researchers with rights of federal governS ment application reserved at no fee. The graduated royalty structure applied to product value rewards mediocrity and penalizes efficiency. 3. The onerous and involved requirements imposed on the researcher by the proposed regulation impede applications for leases. 4. Subordinating mineral research to the oil-shale research requirement delays and discourages development of Colorado's oil-shale minerals into a domestic alumina source. Rapid development of a domestic alumina supply is much more important to United States welfare than rapid development of shale-oil pro- duction. The proposed regulation contains no provision overcoming the legal impediments posed by the sodium exploration permits and mining claims. VI. Michael E. Parrish, New Haven, Connecticut The pending regulations are lacking a concern for the welfare of the people, dictated by expediency, and designed ultimately to perpetuate monopoly. The leasing guidelines set forth by the Department of the Interior embrace conflicting principles. We are told that the basis of awarding research and development leases will include: (1) enhancing opportunities for maximizing multiple mineral recovery; (2) the financial and technical capabilities of the applicant; and (3) enhancing the competitive opportunities of smaller com- panies. This is utter nonsense. According to a report of engineers from the Bureau of the Mines: "The cost per barrel of producing shale oil by mining and retorting will be substantially lower for an operation on the order of 50,000 barrels per day than it would for a small operation such as 5,000 barrels a day. Accordingly, it is doubtful that small scale operations would be economic or practical. The capital requirement for an economic-scale shale-oil production facility in the 50,000 barrel-per-day range would be as great as $3,000 per barrel of daily capacity, which is out of the reach of most small operators." PAGENO="0178" 174 FEriERAL OIL SHALE PROGRAM The only provi~sion designed to enhance "the competitive opportunities of smaller companies" is the provision concern~ng patetits. I suggest that the only possibility of competitive development from the point of view of the American consumer, remains a Federal corporation similar to the T.V.A. VII. J. ft. Freeman The exchange regulation should not be adopted until it is determined whether all previously disposed oil shale lands or their value can be recovered. The regulations are designed to continue transfer of oil shale reserves to giant oil companies. The executive branch should propose a government corporation or T.V.A. development plan. VIII. MiehaelD. Cohen Oil should be sold to the oil companies with full profits going to the govern- ment. IX. J. Wayne Kinney Mr. Kinney wants oil shale lease for turning oil shale into food by bacterial action. Mr. TJDALL. I also wish the record to show that I have with me at my right the Department Solicitor, Mr. Barry, who will sit with me at the hearing this morning. Mr. Chairman, I should first like to say that I think this is a very timely hearing. There is a crescendo of interest in this subject. There is another month to run for the official comments, but I think having a hearing at this time is most appropriate. It certainly gives us all an opportunity to air our current views on this subject. I want to say to all of those in the room, because I think we have a very impressive witness list, that I intend to personally read every statement that is going to be presented. There is no subject on which there has been more top executive timber involved in my Department than this during the year 1967, and I suspect this will continue to be the case. I am impresssed by the fact, Mr. Chairman, that you have here leading experts on the scientific technology aspe~t, such as Dr. Jones of Humble Oil and Dr. Orb Childs; that also Fred Hartley of Union Oil is here. His company probably has the largest holding and has spent more money on research over the long past, and you have Mr. Winger of Chase Manhattan, a leading economics expert in this field; Mr. Winston of the Oil Shale Corp., that has been extremely active. That leading conservation organizations are represented here today, I think is very good. I have said before to this committee and I want to reiterate today that on a subject as important as this I think we need the big white spotlight that only a congressional committee can throw on this subject before final decision can be made. We had a "Teapot Dome" controversy-scandal, in my judgment- because the Secretary dared to make policy in the dark of night and that is the last thing that we would propose to do on this subject. I think that the illumination that we will get from this hearing and from the comments that are made should help us make policy where all the arguments and all the alternatives are spread out before not only us but before the people of the country. This is the reason I say very sincerely that I welcome this hearing. I think it is most timely. PAGENO="0179" FEDERAL OIL SHALE PROGRAM 175 I want to make one more preliminary comment before I begin read- ing and that is I think that without doubt the Middle East crisis of June, and it still continues, was a very traumatic experience, as one would expect, for the petroleum industry. It has caused a lot of our leaders in this industry to review their policies. I think it is very obvious it has caused them to take a homeward look, too. This was evident in the very handsome bidding that took place on the Continental Shelf. It happened we had scheduled the lease sale months before the Middle East crisis. The sale occurred on June 13, 1967, and Uncle Sam is $510 million richer as a result. It has also been evident in the past weeks in a very definite quicken- ing of interest we sense from the industry people in the leasing pro- grams on our Continental Shelf. We are considering, and I wanted to report this to the committee- we have made no decisions-but we are giving very serious consider- ation to a large new leasing in a completely iiew area on the Con- tinental Shelf in the Gulf of Alaska. Very promising seismic information has been made available on this. We are also considering a new leasing program fairly soon on the Continental Shelf areas off Louisiana and Texas. This is as a result, as I say, of this new and very lively interest in looking down the road to future development. There is a long leadtime in petroleum development, even in terms of the present technology of undersea exploration and development on the Continental Shelves. There will be a long leadtime, this we all know, in oil shale as well, and the reason why we have to have fore- sight in making policy is that we all recognize, I think every one in this room recognizes, that with a Nation whose industrial power is growing the way ours is, that) the need for energy and the need for raw materials is increasing at a very rapid rate. We therefore have to do proper long-term planning. So I am pleased, Mr. Chairman, to report on the status of the pro- posed leasing regulations. I direct my attention particularly to point three of our five-point program because I think the other four points are not seriously con- troversial in the program we announced last January. On May 7 we announced the issuance of proposed regulations. I will address myself to proposed leasing regulations in this state- ment and will be pleased to answer questions about the proposed ex- change regulations as well. As a matter of fact, I want to ad lib another comment here. I discussed this program only last week on a western trip with Gov- ernor Hathaway of Wyoming, and Governor Love of Colorado, whom I visited again in regard to this matter. Governor Hathaway brought up an interesting point that had been raised by his people. He said all of the States in this region under the grants at the time of statehood have State land and he asked if the State were to want to block up its holdings in leasable units would that be permissible, would we coop- erate with this ~ My reply was in the affirmative. I told him I wanted to check this, and I have checked this with my Solicitor, so the States are ih~a posi- tion to take some initiative themselves in this field, if they so desire. PAGENO="0180" 176 FEDERAL OIL SHALE PROGRAM The Depaitment's Bureau of Mines, Geological Survey, and Bureau of Land Management have for many years studied developments in the oil shale technology. It is their conclusion that a great deal has yet to be learned about the technology and economics of mining and processing oil shale and the recovery of shale oil and other mineral products from the rock. As of this time, neither oil nor other minerals are recovered from oil shale in this country in any commercial opera- tion, although there are substantial private research efforts being made to achieve that result. So far as I know the most optimistic estimate made thus far is that of a single private venture, and they are repre- sented here in the room, to he in production of shale oil in Colorado in 1970. We are aware of other minerals in the shale which may he valu- able resources in the future. These include the sodium and aluminum minerals present in dawsonite, and the sodium minerals present in nahcolite. It is likely, as we all know, that the largest, by far the largest de- posits of aluminum minerals in the Nation, in a Nation that is short of aluminum, is present in these oil shale deposits. The technology for economic recovery of these minerals from oil shale is less developed than that for the recovery of shale oil from the Green River shales. Faced with the absence of practical experience in the production of oil and other minerals from the oil shale, w.e considered that it was premature to open the lands for general leasing-important inf or- mation gaps, we believed, had to be filled first. The lack of informa- tion on the cost of converting oil shale to marketable minerals left us without a firm base for establishing royalties which would provide the incentive to induce venture capital, while insuring a fair market return to the Government. The absence of reliable cost information also afforded no basis to determine what the proper maximum acre- age for leases should be. And we have yet to ascertain the environ- mental hazards and the costs of minimizing them. Additionally, if the lands were made open to general leasing before a technology is de- veloped which can be made widely available, there is a danger that the resource might be monopolized by the few who made early breakthroughs. This was the point I think mainly underlined by Senator Hart in the Monopoly Subcommittee in commending us for our patent policy. Accordingly, we proposed regulations which had as their objective the utilization of the oil shale provisions of the Mineral Leasing Act to develop a meaningful body of experience on which a permanent leasing policy could ultimately be based, looking toward a competitive bidding system of leasing, which, of course, is the established and prudent long-term system that has been used in this country. A total of 30,000 acres was considered to be sufficient for this research and development effort, but if less is needed, less would be used, and if more is needed, more would be used. We made no final judgments on this issue at this time. In no event would we propose to lease under our proposed regulations any more oil shale acreage than would be reasonably necessary for the research and development program proposed. PAGENO="0181" FEDERAL OIL SHALE PROGRAM 177 Some persons have suggested that the research and development can be accomplished without the leasing of any land, and should be put- sued solely through Government-sponsored research expenditures. We agree that much can be accomplished by direct or Government coii- tracted expenditure on research and development. Indeed, this is one of our five points. Point four of the program looks to joint research with industry in the use of nuclear explosives to fracture oil shale to permit retorting in situ. It is interesting, the first of the AEC experiments on Project Gas- buggy in trying to improve the yield of gas fields in northern New Mexico has been postponed although it will take place within the next 60 days. Point five looks to a total expenditure of about $100 million over 10 years on oil shale technology, economics and geology, and related conservation and environmental protection. About $15 million of that amount would be for in sitn retorting research using nuclear explosives for fracturing (point IV). We believe there is also much to be gained by an approach taking into account the many firms and institutions, which, with their diverse research programs and commercial interests may be able to make important contributions to the effort. On the other hand, there are suggestions that the state of the art is far enough advanced to permit a system of competitive leasing now. This was a major point made by the Governors of the three States in their statement which I think anyone who would read it would have to say is a constructive and forthright statement, and one that obviously was very carefully prepared. It has been suggested that we make suitably sized tracts of oil shale lands available for competitive bidding, and allow the marketplace to determine the pace of investment in oil shale research and production. Many of the comments we have received to date, including the com- ments submitted jointly by the Governors of Colorado, Utah, and Wyoming, urged this course. As I have mentioned earlier, we were not satisfied that we could devise a full-scale leasing policy now that would permit such development and at the same time protect the public interest. We are open to argument that there are ways of do- ing this, but we have had serious doubts about this. However, the intensive study we have underway, and to which I will refer in a moment, will afford an opportunity to evaluate further this as well as other proposals. This is the background to our initiat decision to propose research and development leasing by use of the Mineral Leasing Act. W~ devised proposed regulations to obtain the necessary information in the shortest time possible, with safeguards to prevent speculation and monopolization, to provide maximum revenues, and minimize environmental and safety hazards. We offered the regulations for public comment to be made within 30~ days of the time the regulations were announced, and we subsequently extended the time for comment, until mid-October, as you know. We have received views from individuals, industry, and the educa- tional community, Federal agencies, and State governments. I am sure, PAGENO="0182" 178 FEDERAL OIL SHALE PROGRAM because it is always the case, thai some of them will come in at the tail end, just before the final deadline. Indeed this record here is, in es- sence, part of the same record. We are carefully studying these comments to test out our assump- ~ions and to improve our approach. I am pleased to furnish the com- mittee copies of the comments, with a brief summary. Aided by these comments we have in process-and we are not waiting until October- we already have underway the further intensive study of oil shale policy which is so necessary in arriving at the decisions on a proper program. Our target date for completion of this study is mid-January 1968. I would now like to outline the manner in which our proposed regu- lations would operate in their present form; that is, the form we pub- lished them in May. We would expect that those interested in research on the publicly owned oil shale lands would present their proposals to the Bureau of Land Management. The proposals must look toward research in the recovery and processing of oil shale during a maximum research period of 10 years. The applicant would have to show that he is technically and financially capable of conducting the work and has a serious in- terest in going forward. Before any lease would be issued, the Depart- ment would decide whether there is any basis for permitting the statutory maximum of 5,120 acres to any single venture. If the facts demonstrated that any optimum operation, allowing for reasonable re- serves, could be expected to need less than the 5,120-acre maximum then a lesser figure would be the maximum specified in the lease. The lease would have two phases. The first phase, which would be a maximum of 10 years, or any shorter perior of time if the work moved more rapidly, would permit the applicant to engage in the proposed re- search and development on a designated tract of oil shale land within the area leased to it. During the research phase if the applicant needed less than the total acreage of the lease, lie would, therefore, be permitted to conduct the research only on that part which he demonstrated he needs. When the applicant completed his research within the 10-year term, and satisfied this department that he had developed a commercial process, he would be authorized to begin commercial production. The acreage within the maximum which would be permitted for commer- cial production would be that amount which the applicant demon- strated was needed for his commercial operation, with a reasonable amount for reserves. In considering whether to issue a lease, a number of facts would be important. Leases for the purposes of speculation or to hold the krnd without doing the research and development would not be issued. We are not going to give someone a lease that they can sell. That is not in the public interest. * It would therefore be necessary for the applicant to demonstrate his need for the Federal acreage. Any applicant who asked for a tract sirrdlar to shale lands he already holds, in terms of acreage, overburden, grade, thickness, quality, and depth of deposits, and accessibility to transportation, water, and other needed resources, wOuld have a heavy burden to discharge. On the other hand, much PAGENO="0183" FEDERAL OIL SHALE PROGRAM 179 of the land in private ownership has substantially different physical and geologic characteristics than some of the Federal lands, and if the proposed program were a promising one which could not be pursued on the private land, the need for Federal lands could be established. These proposals which offer the greatest protection to the environ- ment would, in our view, be more favorably received than those which do not. The extent to which applicants have available alternative sources of supply of the minerals that they propose to recover from the oil shale would be taken into account. However, these consideratio~~s would not be administered arbitrarily. The purpose would be simply to select proposals most likely to enhance the basic objectives of the program-to develop oil shale technology, to prevent waste, to con- serve resources, to encourage competition, to prevent speculation, and to avoid windfalls. One of the most difficult tasks was to devise a suitable royalty system for the proposed regulations. I particularly direct the com- mittee to this as an extremely difficult task. As I mentioned earlier, one of the purposes of the program would be to develop a body of information on which a royalty system for competitive bidding could be based. For the research and development lessees, great care must be taken to insure that even on the limited acreage involved in the research and development phase there would be tio possibility of windfall. Care also must be taken to insure that the royalty system would not operate to preclude sound ventures from successful operation. We considered the royalty system now in use on leased Federal oil lands, which is a percentage of the value of production-one-sixth of the value on the outer Continental Shelf; one-eighth for noncom- petitive leases under the Mineral Leasing Act-while this system has worked where the costs of production were known, it might be an im- pediment to oil shale production if it were followed without modifica- tion. I underscore that word "impediment." A royalty on production is an expense of doing business. It is payable irrespective of whether the product can be marketed competitively with other sources of the same product. It is possible therefore that one-sixth or one-eighth royalty on production might make shale oil noncompetitive with con- ventional oil, depending upon the costs, as yet unknown, of producing the shale oil. We therefore devised an alternative which would not be imposed as a cost of doing business, but would permit the public to share in any profits of the venture. A percentage system based on net income has this characteristic. If production costs of shale oil turn out to be high, and the margin between cost and market price is low, no additional expense of doing business would have been imposed to render the ven- ture unprofitable. The net income percentage therefore would operate in the same manner as a percentage income tax operates. If the venture were profitable, there would be a tax on the percentage of income. If the venture Were unprofitable, there is no tax. My people took considerable pride in this part of the proposed regulation, and I would certainly welcome the most incisive comments PAGENO="0184" 180 FEDERAL OIL SHALE PROGRAM from the members of this committee and from the witnesses who are going to appear, on this aspect, because it is troublesome and it may be very vital. This is why we proposed to use the income percentage method of obtaining royalties. However, we did not want to depart completely from the production percentage basis, because whatever the profit- ability is, if companies are willing to produce a substantial quantity of the product from the public lands, there should be some return to the Government from the sale of publicly owned mineral resources of the leased land. Therefore a minimum royalty of 3 percent of produc- tion was proposed. We also had to decide what the appropriate rate of royalty would be. Here again the lack of experience on the cost of shale production rendered the problem difficult. We set as a goal a royalty rate of shale oil net income which would have the equivalent impact on net income as the royalty rate on production value used on the Outer Continental Shelf lands leases. That royalty is 162/3 percent of the value of the minerals produced. It was the judgment of our economists that on the average a 162/3-percent royalty on production would work out to be about 30 percent of net income from conventional oil producing prop- erty. A royalty rate of 30 percent of the net income from the property was therefore our target, without taking into account depletion or the payment of the royalty itself. The simple method to have done this would have been to state that the royalty rate was 30 percent of net income from the property, without regard to depletion or payment of the royalty. There was, however, another factor to be considered. The net income royalty system, although not an expense of doing business, does have an effect on the rate of return of investment in the venture. We were concerned that a flat rate of 30 percent of net income might reduce the total income from the venture to a point where it would not be attractive to enter this new and unproved business. Accordingly, the royalty percentage we proposed would be made applicable in brackets so that the venture need not fear that a low rate of return on investment would be reduced to below where it would be attractive to make the investment. We proposed three brackets. On that part of a company's net income which represents no more than 10-percent return on investment, the royalty rate would be 10 percent. On the part of its net income which exceeds 10 percent and is no more than 20-percent return on its invest- ment, the royalty rate would be 30 percent. On the part of its net income which is more than 20 percent of investment, a 50-percent royalty would be imposed. This means that no firm would pay an effective rate of 50 percent of net income in royalty. It would operate like the income tax rate, in that a taxpayer in the 50-percent bracket is not paying 50 percent of his income as tax, but is paying a tax some- thing like an average of the bracket rates up to 50 percent. In the case of our proposed royalty system, the effective royalty rate of the most profitable venture is estimated to be approximately 30 percent of net income if the venture, in terms of return on investment, were about as profitable as the production of oil from conventional sources. If the venture were to yield a higher rate of return on investment than from conventional sources of oil then the effective ratt~ may be greater PAGENO="0185" FEDERAL OIL SHALE PROGRAM 181 than 30 percent of net income, and would trend in the direction of 50 percent, bul would never reach that point. A great deal of interest has beeii expressed in this royalty system, and in the actual bracket rates which were proposed, and what we pro- posed 4 months ago was simply our best thinking at that point. Some of the comments which we received addressed themselves to the im- pact of the system on anticipated operations. These views will be con- si dered carefully in our study. I want to emphasize, however, that the system was developed for the special needs of our research and devel- opment program only. It was our hope that the outcome of the pro- gram itself would provide the information needed to design a royalty system, a permanent royalty system, for competitive leasing, when such leasing becomes appropriate. Another difficult aspect of the regulations involves the problems of multiple mineral development. This is another item I should like to underscore for the committee. The shales in the center of the Piceance Basin contain substantial quantities of dawsonite, a sodium-alumi- num compound finely disseminated in the shale rock. Nahcolite, a sodium compound, is also present, and it is always possible that other minerals will be found. We expect, through the research and develop- ment program, to learn a great deal about the technology and economics of operating in this mineral complex, with a view to develop- ing pi~ooesses to recover economically substantially all the market- able minerals within the shale. In other words, if we went just to a straight competitive bidding approach on this, are we in a position where we can require the recovery in the national interest of all of the values that are present or have a party holding the lease simply go ahead and recover the oil and leave the other values there. It is pos- sible, however, that some techniques may be proposed which would result in the recovery of some minerals but not others. Thus, while we would encourage the maximum recovery of all the minerals, we would also consider proposals which would concentrate on only some of them, because it is premature to render a final judgment that a particular deposit should be worked only if all the minerals can be extracted, or that any or several minerals should be preferred over others. We do not know. Our experts do not know at least at this point. Another matter of special concern relates to inventions resulting from the program. We have announced our intention to follow the President's patent policy which provides that in the case of Govern- ment-sponsored research for the general public welfare, the rights to inventions should vest in the United States, so that they may be used by all without royalties. This, of course, is good for industry generally in terms of the competitive situation. It is also good for the consuming public. It must be remembered that the entire effort was aimed at creating techniques so that when the shale lands are made available they would be made available in a meaningful sense-the techniques developed for exploiting the shale would not be monopolized by the few who had obtained research leases in the beginning. Aiiy policy whereby the Government made such a large resource available to a few for research purposes without providing that the benefits of the research go to the public, would not be a research and development policy at all, but simply a land disposal program. If we believed that PAGENO="0186" 182 FEDERAL OIL SHALE PROGRAM the techniques were far enough advanced now so that a simple land disposal program could be initiated, that is what we would have pro- posed. But we did not feel that we could make the resource available for the purpose of developing the technology without guaranteeing that the technology would be available to develop the resource over the long-term future. In sum, under point 3 we proposed to purchase for the public, with a limited amount of oil shale resources, technology which all there- after could use. We proposed to purchase technology on terms that would induce the substantial risk capital involved, while returning to the publiè fair market value for the resources disposed of. We ex- amined a variety of alternatives-those that would hold back the de- velopment of the resources were as unacceptable as those that would open all the lands when so much had to be learned about how to best protect the long-term public interest. Before concluding, there is another aspect of oil shale development which I want to discuss. On April 25, 1967, the Department of the Interior transmitted to the Congress a proposed bill to provide for the recordation of mining claims. The bill was introduced by the chair- man of this committee by request on April 27, 1967, as S. 1651. That bill has an important bearing on the ultimate objectives of the Department's 5-point program for the development of oil shale re- sources. The oil s1I~Ie development program requires action to clear titles to Federal lands and to determine the validity of oil shale min- ing claims. In fact, this is our big threshold problem, and it is a very serious one. V~ie estimate that location certificates for about 30,000 to 60,000 oil shale mining claims were filed in local county recorders' offices under the 1872 Mining Act, prior to passage of the Mineral Leas- ing Act of 1920, which precluded further locations for oil shale. Loca- tion certificates for an additional estimated 10,000 claims have been filed recently, within the last 18 months, in oil shale areas for various minerals. Under the present Mining Law, with a few exceptions,, the mining claimant is required to file notice of his claim only in the local county recorder's office. No filing with the Federal G-overment is required. Many of the mining claims now on record in county recorders' offices describe the claims in terms of corners tied to rocks, blazes on trees, and other natural monuments. The physical site of the claims may be ascertained, if at all, only by actual inspection on the ground. It would take a whole army of people if our Department were to have to under- take this. Additionally, the identification and location of the claimants in many cases has long been out of date and obtaining current infor- mation is costly, and in some instances may be impossible. The Depart- ment's proposed mining recordation bill will go a long way towards solving the title problems. It would tremendously hasten the whole process, and I am aware of the fact, I might as well be blunt about it, that some of the mining industry people who are attached to the oil law and do not want it changed are opposed to this. They have said so quite directly. I want to make it clear, too, that their opposition is holding back shale oil development, in my opinion. It would materially enhance the process of locating and serving claimants, closing out abandoned claims, bringing title questions to PAGENO="0187" FEDERAL OIL SHALE PROGRAM 183 issue, and resolving such issues properly, if we could move quickly in making our policy determinations and if we could get the help of the Congress in this situation. We therefore urge this committee to give its earliest consideration to S. 1651. That completes my direct statement, Mr. Chairman, and I hope ~e have been frank with the committee. We will be glad to answer any questions. The QHAIRMAN. Thank you, Mr. Secretary. I want to compliment you again, as I did in my opening statement. Your statement this morn- ing has been extremely helpful to us. It seems to me that what we are dealing with is, of course, a proven reserve in which the state of the technology to convert this reserve to oil has made some progress but still has a substantial way to go. It is most difficult to reach a final conclusion until the extent of the devel- opment of the technology to extract this product is known. It is obvious that the number one problem we face is to get that information. As I understand it, your regulations propose to bring to bear. every- thing that is within our free enterprise system to ascertain what is the most economical and feasible means by which the oil shale can be extracted and converted to petroleum products. I thinl~ this is a sound, logical approach, because you cannot really determine what the re- turn to the Government should be unless you know what the poten- tial return will be to those who operate on the public lands. Mr. Secretary, I wanted to ask you one question with reference to net profit-sharing on the royalties under the proposed regulations. It is true, is it not, that some of the companies could have a pretty high cash flow which would not show up in their net income return which might not be adequateiy covered by the proposed regulations? Mr. UDALL. Senator, I think I would have to say that this is possible. It is one of the things that I think we need to give further scrutiny to, in terms of knowing how sound our proposal was. The CHAIRMAN. This is an area in which I do not know the answers. I am just posing the question. Mr. TJDALL. Yes. The CHAIRMAN. The royalty relates to net income, and, of course, you could have a fattening of the company, so to speak-a cash flow- which would not he reflected in the net profits. I wish that the De- partment would take a close look at this problem. I think it is impor- tant that we have a pretty good index as to the true return that is being obtained regardless of method of accounting and bookkeeping prac- tices. That is all I have for right now. I want to compliment the Secretary. Senator AlIott? Senator ALLOTT. Thank you, Mr. Chairman. Mr. Secretary, I want to say one thing to begin with. I compliment you on moving forward in this area, even though there are points in your statement and your proposals about which we feel differently. At least we are moving ahead, and we have something concrete now before us which we can analyze and discuss and get the opinion of people who are on the other side of the fence, so to speak, the people in business whose judgments on how this would affect the development of the oil shale industry would be very valuable. PAGENO="0188" 184 FEDERAL OIL SHALE PROGRA1Vt Unfortunately Mr. Chairman, I am afraid that in a sense we are all affected with the Teapot Dome Syndrome. I am sure that neither the Secretary nor any of his assistants nor his administrati9n are go- ing to be involved in anything which would effect a situation which would result in a monopoly or a windfall to any company if it can possibly be avoided. I am just as positive that there is no member of this committee, the full committee, or in the Senate, who is going to abide by such a result, if they can possibly avoid it. So I hope that this syndrome, which seems to pervade much of your discussion and thinking, can be discarded with the concept that no one that I know of, including the possible developers~ the business people in this country, who might possibly develop a viable industry here, are of a state of mind where they are looking for such a windfall. Mr. TJDALL. Senator, I wonder if I might have a colloquy with you on that. Senator ALLOTT. Yes. Mr. TJDALL. Because I want to make it plain that is the reason I said what I did at the outset-that we genuinely welcome these hearings. In fact, if this set of hearings does n~t satisfy the committee, let us have another one. My people live under, and I live under, what I think I would describe as using your figure of speech, a permanent Capitol dome syndrome. I think this is quite proper, because the Congress of the United States is ~ur overseer. You have oversight over our respon- sibility, that is the reason that the more you understand what our thinking is; what is before us; what plans we are considering, what arguments are present; the less the chance there will be of a bad public policy being made or of there being serious criticism. I think, for pur- poses of people downtown, the Capitol Hill syndrome is a very good one. I suggest we consider it in that light. Senator ALLOTT. Now we can get out of the area of psychiatry and into a discussion of some other matters. I must say that my questions will be few, Mr. Chairman, because I think many, if not most of the things I want to ask questions about will be developed by other witnesses. Mr. Secretary, at your former appearance here, we discussed in some great detail the clearing up of the situation with respect to the other minerals, particularly in the Green River formation, such as dawsonite and naheolite. I would like to ask what has been done with respect to the various mining claims that have been filed as against the pros- pect for leases and so forth? What has been accomplished on that? Mr. TJDALL. You are referring, Senator, to all the new claims that were filed or about the general picture? Senator ALLOTT. No. Let me make this clear, Mr. Secretary. What I am asking about is the new claims arising out of other minerals, not the old claims arising under the laws prior `to 1920. Mr~ TJDALL. Well, we are moving as rapidly as the legal system, the limitations of the legal system-and its mills grind slowly; as we all know-to establish the basis for determinations and to get ourselves in a position where we can resolve these issues. PAGENO="0189" FEDERAL OIL SHALE PROGRAM 185 We are also crippled in this, however, I should ~tress, by the fact that we have relatively limited information considering what we should have, as to the nature of some of these claims. We are moving as aggressively as we can on this. We have some matters that may be in iiti~ation and I think as `soon as we get some baseline determinations on this, it will be relatively easy to deal with the large general problem. Senator ALLOTT. Well, to delineate this problem as it applies to the situation in Colorado, the approximate area of the o~l shale land is, I believe, 700,000 acres; is that correct? Mr. UDALL. I think something in that order. Senator ALLOTT. And approximately 20 percent of the 700,000 acres is in private holding, IL mean it is actually fee land now. Mr. UDALL. This is a rough figure we have used, 15 to 20 percent. Senator ALLOTr. 15 to 20 percent. So that that would leave us in the neighborhood of over 500,000 acres in the public domain. Now, of this remainder, from your ftndings, how much of that in- volves the lands which have been filed on or applications of one sort or another, prospecting permits or leases, have been made with respect to dawsonite and naheolite? Mr. 1IJDALL. Senator, I cannot give you that offhand. I would like to furnish it to the committee and we can do so very quickly, I think. I can say to you generally that it reaches areas that have some of the richest, thickest deposits of oil shale. GeneraJly this area was blanketed with them. But I can give you a precise figure. Senator ALLOPr. I would appreciate it if you would supply as far as possible what percentage this would be. (The information requested is as follows:) Out of approximately 1,096,000 acres', the Federal Government retains owner- ship of 852,000 acres or 77.7 percent of the to'tai. Sodium prospecting permit and lease applications have been filed on the following acreages: Acres Percent map- of Federal plications lands 8 Preference right lease applications 19, 109 2. 2 88 Sodium prospecting permit applications 197,479 23.2 5 Sodium prospecting permit applications in conflict with 1 lease application 12, 063 1. 5 1 Lease application in conflict with 5 sodium prospecting permit applications (5,125) Total lands under applications for lease or permit_ 229, 251 243. 9 Senator ALLOTT. Since we started out on this question of monopoly, I think the contract made by you, the Secretary, for research at Anvil Points was a very fortuitous one in that it opened up the participation in that research facility at Anvil Points operated under the Colorado School of Mines Research Foundation to anyone who wanted to bear their share of the cost of that research facility. That is correct, is it not? Mr. UDALL. Yes, and this was a very good sort of open ended ap- proach-we invited anybody to come in who wanted to and your very fine school of mines was involved in it and it is a very good example, I th~nk, of a cooperative research venture. Senator ALL0TT. So that in no sense could this have been considered a monopoly, because by the terms of the contract itself everyone had a period of-what was it, 6 months or 1 year? PAGENO="0190" 186 FEDERAL OIL SHALE PROGRAM Mr. UDALL. Six months. Senator ALL0!rr. To come into that, and anyone who was interested enough and wanted to participate could have. I would like to ask you in this respect whether you have had any other p-reposals- fo~ ~~search at Anvil Points outside of the present consortium? Mr. UDALL. No. Once everyone came in who wanted to, and we put it together, I do not think there have been any new entrants into this research venture. Senator Ar~r~ori~. But you would agree, I am sure, that the bill which transferred the jurisdiction back to the Department of the Interior of this areiu-and the legislative history makes it clear-that anyone else could come to the Secretary and that the Secretary has the author- ity and the power to contract for any additional research. So it is wide open. Mr. UDALL. Yes, I think that is very clear. Senator ALLOTT. This is the point I am trying to make, that it is wide open to anybody who wishes to do it. Mr. UDALL. Yes. Senator ALLOTr. It seems to me that we are in sort of a "chicken and an egg" process at this point. On. page 6 of your statement you say: When the applicant completed his research within the 10-year term and satisfied this department that he had developed a comthercial process he would be authorized to begin commercial production. It is my opinion that at the end of that time we will still be in the chicken and the egg process because, until somebody takes that long jump into the cold waters, we will never know whether it is actually a commercial process. You are aware of the various processes that have been worked upon in research, and some of these, I am sure, will be discussed by the people who testify later. It seems to me that what we need to do is to also pro- vide with certainty the concept that a man or a company or a group of companies will be able to secure a lease at some time in the future. The department might believe that he did not or they did not have a com- mercial process. They might believe implicitly that they did and be willing to put their money back of their judgment, and this same situa- tion, I think, is reflected in your royalty proposal. I do agree with the statement of the senior Senator from Utah. I think we are at a place where we can proceed but the determination has to be made now so that anyone who goes further with the processes that they now have and decides to lay as much as $100 million or $125 million on the line-and I take these figures from the hearings that were recently held before the Subcommittee on the Judiciary-can be assured that they are going to have a right of development. Mr. TJDALL. Well, Senator, you have certainly put your finger on a key point and maybe we should clarify the record on this with regard to our own thinking, and maybe as presently stated we stated it too con- servatively. Of course, when we talk about a commercial process, de- pending upon, of course, where a particular project is, we may be talk- ing about just not extracting oil from oil shale but the minerals as well. I think I can say that we are not considering it would be our position that if a company had done research and is willing to invest large amounts of money-this is what it will take-that this is a real test. PAGENO="0191" FEDERAL OIL SHALE PROGRAM 187 We should take at that point not a very conservative view in terms of whether they had a process or not, but if they have a process that they show is sufficiently good that they are willing to investigate $100 million or $200 million, I know enough about the way American industry oper- ates to know that in all likelihood this would be a process that could be shown to be satisfactory from our point of view. I think that is the decisive thing. But I still think we are going to have to have, because of this multi- mineral aspect, some reserved judgment on this. Senator ALLOTT. Well, when you refer to Government-sponsored re- search, what is your concept of what such Go~vernment-sponsorecl re- search should be, Mr. Secretary? Mr. UDALL. Well, I think the Government-sponsored research prob- ably should be in the in situ field. Obviously we are going to have the Atomic Energy Commission in that in any event. I thmk that there are some of these particular aspects of the problem where the Government research effort, as the protector of the long-term interest of the Nation as a whole, ought to be in the direction of maximum utilization of the resource. If would expect in the first stages that some company's interest might be in a more narrow band of interest, and what our research ought .to try to do is to enlarge the usefulness of the resource. We should also be active in the development of the technology where the Government must inherently be involved; such as, in the case where nuclear frac- turing or anything of that kind is involved. Senator ALLOTT. Certainly in the case of any in situ retorting by the way of nuclear power, the Government would have to be involved, and I agree we have to keep our eyes open for the maximum develop- ment and maximum utilization. In this respect now it is true that under the authority under which you promulgated these proposed regulations the most that any one per- son could hope to lease would be 5,120 acres; is it not? Mr. UDALL. Yes, that is true, Senator; but this is written into the law. This is a limitation we have not laid down. This. is the basic mini- mal leasing statute. Senator ALLOTT. This is right. Under the authority you now have. Mr. UDALL. That is right.. Senator ALLOTT. You could not do more than this. Mr. UDALL. In any event, that is correct. Senator ALLOTT. And more than that, under the revised Mineral Leasing or revised Leasing Act of 1961-I believe it is 1961-this is all that it could be. This is the maximum acreage with respect to oil shale that anyone could hold in the United States. In other words, no one per- son or a corporation could hold more than 5,120 acres of shale land. He could not pick up 5,120 in Colorado, another 5,120 in Wyoming, and another 5,120 in Utah; is that correct? Mr. UDALL. Well, I think you are correct. Senator ALLOTT. So if we can conceive of six companies-and, of course, the companies who are interested in developing this are pri- marily oil companies because they are the ones who need the oil that pours into our automobile fuel tanks as gasoline-if six companies de- cided to gamble-I should say invest, although it may turn out to be a PAGENO="0192" 188 FEDERAL OIL SHALE PROGRAM gamble-$100 million or $125 million in the Colorado area, which is the area in which most of the development has taken place, we would still only be talking about 30,000 acres, a little over 30,000 acres, out of approximately 500,000 acres which lie in the Federal domaift. Mr. 1IJDALL. That is correct, Senator. It is a very small fraction. Let me try to express this situation, if I can, for the benefit of the record. Of course, under the oil leasing statute on the Continental Shelves there are no acreage limitations per company. There is a high- est bidder proposition, and this is in are~s, of course, where we have some knowledge of what we expect might be there, and companies can and do bid for more than one block, the total acreage of which may be much greater than 5,120 acres. But oil shale is covered under the Mineral Leasing Act, and under a special section of that Act, and, therefore, the 5,120-acre limitation is a limitation by law. Now, once we have the process developed, once we have the tech- nology, once all the unknowns are known, we may arrive at a point where it may be in the public interest to' come back to Congress and to have that specific acreage limitation reconsidered. But I think for the time being it is probably a sound limitation and that this means that oil shale is treated differently, it is treated as a mineral and not as petroleum on. the Outer Continental Shelf is treated. Senator ALLcvrr. Well, because of your answer, I will have to make my own position clear. I am not contending, Mr. TJdall, that it should be larger than this, but I just wanted to get on the record what we are dealing with. With respect to patents-and I forget just where you covered this in your statement-I think we make an error here in considering this on a separate basis from any other resource. I have contended for many years, while many others kept quiet in the Senate, that develop- ment of oil shale was in the national interest, in the public interest. When I discussed the possibility of the curbs on imports that might occur because of the Suez or Arab-Israel crisis, people looked at me like I was having pipedreams. But this has come about and it has affected particularly Europe, it has affected us, Mr. Secretary, as you well know. It seems to me that in the area of process patents that the greatest deterrent to oil shale development would be for the Government to insist that because the people are working on a public resource that any patents' developed would belong to the Federal Government. If we take this same analogy back to our mining laws, then all of the patents developed during the long tedious years of developing mining in this country-gold, silver, lead, and zinc, the whole thing that your State has, as well as mine, and most Western States-all of these patents should also probably have belonged just as logically, using your line of reasoning, in the public domain. It occurs to me-and I would like to have your comments on this- that we cannot regard this in the same light as we do any one of the two dozen fields in which the Government puts up a major portion of research costs-we are now putting some $17 billion a year into re- search. In those instances the government is actually financing the research, whereas in this instance the private companies are financing the research and, frankly, I think this patent policy will be one of the PAGENO="0193" FEDEEAL OIL SHALE PROGRA1\~E 189 greatest deterrents to developing an industry, where a company has devoted not just the last year or the last two years but many companies have devoted many years and invested many millions of dollars look- ing down the road to ultimate oil shale development, that we will end up by placing a road block ut the path of development. Mr. TJDALL. Senator, let me be very candid in reply. I will be inter- ested in what some of the large petroleum companies have to say on this issue. Senator ALLOTT. So will I. Mr. UDALL. My Department, because we are custodian of much of the resources, has been very rigorous in terms of the present patent laws, more so than some other departments in the past. I think there is good reason for this. Let me give you some examples. In the Anvil Points oil shale research project our patent policy was made applicable. Another example, in another area this committee is very familiar with, is our water desalting program. Of course this is the Federal Government in this instance itself investing the money in research in contracts with everybody. In that instance, even though some of these companies, as for example, Westinghouse, are doing research on their own, have generally accepted our patent policy. Why ~ In this in- stance what the Nation wants through our desalting research pro- gram is an alternate source of water supply at reasonable cost. We want to have processes that will give the people the cheapest water possible-indeed the President has offered to share whatever we have with the world in this field. Our patent policy is designed to accomp- lish this. When we get to the oil shale, it is true, as you suggest, and that may make it somewhat different, that some of the money invested under what we are talking about would be the money of private firms. On the other hand, they are going to be experimenting with a re- source that the public owns. Some of these companies have private holdings of their own, many do not. It is an access to that resource which is provided. The ultimate objective of the whole program is the full and maximum development of this resource, and when we keep in mind the long-term national interest and the consumer interest and these other things, then the strict patent policy, if you want to call it that, is best and it is soundest because the patent policy question bears upon the question of monopoly or antimonopoly. I would urge that you look at the statement of Senator Hart because this is an aspect they have a very legitimate interest in, and they took a strong position on this issue after inquiring into it. I know it may not appear as clear cut as the desalting, for example, where the Federal Government is putting up all the money. I would be interested in knowing what the companies think about this issue really. I do not think it is going to be an impediment, quite frankly. Senator ALLOTT. Well, this raises a question, Mr. Chairman. I did not insert a statement into this record because I did testify before the Hart committee at some length. I think I shall have to ask that the statement which I made before that committee be included in these hearings at this point. PAGENO="0194" 190 FEDERAL OIL SHALE PROGRAM The CHAIRMAN. Without objection, the statement of the senior Senator from Colorado made before the Hart Subcommittee on Anti- trust and Monopoly will be included at this point in the record. (The statement referred to follows:) STATEMENT OF SENAFOR GORDON ALLoTT BEFORR ANTITRUST AND MONOPOLY SUB- COMMITTEE OF THE SENATE JUDICIARY COMMITTEE, APRiL 26, 1967 Mr. Chairman, I appreciate this opportunity to make these remarks before the subcommittee, and I hope it will serve a useful purpose. Inasmuch as the bulk of the oil shale resource is in my own State of Colorado I have followed these hearings with some interest. I have bad an opportunity to briefly read the transcript of the hearings held last week on Tuesday, Wednesday and Thursday. As a result, I noticed that the scope of these hearings is such that I felt it might be useful for me to comment on the subject. As the Chairman knows, the Interior and Insular Affairs Committee, on which I serve, has held two sets of hearings on oil shale. While I understand that the February 1967 hearings are soon to be printed, they were not completed. Those hearings were adjourned subject to the call of the Chair. While I cannot speak for the Chairman, it was my understanding and belief that further hearings would be scheduled as developments warrant. During those hearings I specifically asked the Secretary of the Interior if he thought that separate hearings on just the leasing aspect of oil shale would be helpful and advisable. He agreed that they would be useful at the right time. The Secretary then explained what he believed the "right time" would be. Rather than paraphrase him, I shall quote him directly from the transcript: "Once we have put out our regulations, once we have had comments from industry and from others', once we have then made our regulations final, and we are moving on into the development of the new leasing techniques, if they are new, we are not sure they will be, I think this would be a time when it would be useful to us to have the Committee get into this picture." The Secretary and I share the belief that the more public discussion there is of the issues and problems involved the more likely we are to find the best and most appropriate answer. In this respect, Mr. Chairman, these bearings before this Subcommittee can be helpful. The more light that is shed on the subject the better our chances will be of separating the wheat from the chaff, of discerning fact from fiction, of determin- ing what is substance and what is fantasy. It would be most unfortunate if either the Congress and/or the Department of Interior based its policy decisions on fantasy rather than fact. As you pointed out in your opening statement, Mr. Chairman, the overall problem rests within the jurisdiction of the Interior and Insular Affairs Committee, but I am sure that the record developed here with respect to competition and monopoly will be carefully reviewed by the Interior Committee when circumstances and developments are such that the overall policy can be appropriately considered. I am fully in accord with the belief ". . . that the fastest development of oil shale will come about when a program is developed which encourages maximum competiton." Obviously, the problem is how to develop such a program. To simply open up the land to un1bridled leasing may not only create a giant spec- ulative leasing flurry, but may also tend to retard development by securing min- ing rights to those who are not seriously interested in development and denying them to those who do wish to develop oil shale. Such leases are sOmetimes characterized as "nuisance leases". On the other hand, to delay in coming up with a leasing program. increases the chances of concentration, because it affords those with abundant capital an opportunity to solidify their posi- tion by acquiring certain necessary and associated rights, such as water rights, patent rights to technology, etc., tending to eliminate those not having the staying power that large amounts of capital affords. It is for this reason that I have been urging the Secretary of Interior to promulgate leasing regulations with research and development requirements at the earliest possible time. I must say, however, that my urgings have gone largely unheeded, for with the exception of the Secretary's announced Five Point Oil Shale Development Pro- gram, dated January 27, 1967, nothing in this regard has come from the De- partment. As announced, the Secretary's proposal would appear to be within PAGENO="0195" FEDERAL OIL SHALE PROGRAM 191 the concepts of our economy, and would seem to meet th~ requirements for a competitive industry. However, the Secretary's proposal as set forth in his January 27, news release, was apparently primarily a broad statement of objectives. There was simply not enough detail for me to comment on whether the proposal would be successful in obtaining those objectives. As soon as there is enough detail available, I will ask the Chairman of the Interior Committee to schedule additional hearings on the proposal. Earlier in these hearings, concern was expressed that the Secretary of the Interior ". . . believes that he can move ahead without specific legislative authority . . ." to establish rules for development and production of oil shale. In fairness to the Secretary, I believe that it should be pointed out that the Secretary of the Interior does have such statutory authority under Title 30, Section 241 of the United States Code (Mineral Leasing Act of 1920), and has had such authority for more than 47 years. The statute places certain limita- tions on the Secretary, and prescribes that there shall be an annual rental paid for the lease, and in addition, a royalty shall be paid on production. The Secretary is also empowered to impose covenants relative to methods of mining, prevention of waste, and productive development. Further, there is an acreage limitation with respect to oil shale in that no person or corporation may hold more than one lease, and no lease shall be for more than 5,120 acres. Simply as a point of reference, the limitation on the number of acres of coal lands that one person or corporation may hold, as enacted in 1964, is 46,080 acres in any one State, with the provision for additional acreage in other States to that same person or corporation of up to 5,120 acres per State. There has been testimony earlier, that there are 3,G76,000 acres of Federal land containing not less than a 15-foot ledge of shale containing 15 gallons of oil per ton-of course, much of it contains much more. But considering the acreage limitation which I have just mentioned, this would be sufficient to allow 717 separate individuals or companies to take lease of the maximum size- 5,120 acres. 5,120 acres is the maximum size of an oil shale lease, as I read the law; the Secretary has authority to grant leases of lesser acreage. As I pointed out in the May 1~65 hearings before the Interior Committee, the num- ber of acres has little meaning with relation to the quantity of oil underlying it, and perhaps a better guide would involve considerations of the richness of the shale, thickness of the bed, and the amount of overburden. Taken in this light, it would appear that there is room for a great number of developers. As has been pointed out by other witnesses, between 15 and 20%~ of the oil shale is on private land. This being a fact, one might reasonable ask oneself Why there is a need for a Federal leasing policy. Actually, there are ~evera1 reasons. First, without a Federal leasing policy competition is effectively limited to those who now own the mineral estates of the private oil shale land, or who have sufficient capital to out-bid their competitors and acquire mineral rights. Such a situation would obviously affect the ultilnate cost of shale oil and its price to the consumer. Second, the possibility of a leasing policy to be announced at a later date would tend to discourage development on private lands, because the developer might be caught in a disadvantageous competitive position with subsequent Federal lessees. Third, a Federal leasing policy is th~ only practical way to ensure that opportunity is available th a large number of potential developers who are serious about developing a viable oil shale industry. It has been brought to the Subcommittee's attention that it rather serious problem exists with respect to the Government's title to much of the oil shale land. Unfortunately, the problem has become greater with the passage of time and the discovery of sodium minerals intermingled with the oil shale. Daw- sonite, wbi~h is one of the sodium minerals present, may become an important source of aluminum to this country. We rely heavily on imports to supply our industry with this important metal; over 90% of our supply is imported. Ac- cording the Bureau of Mines Commodity Data Summary, our import sources for bauxite for the years 1962-1965 were: Jamaica, 57%; Surinam (or Dutch Guiana), 28%; Dominican Republic, 7%; Haita, 4%; Guyana (formerly British Guiana), 3%; and other countries, 1%. Just a reading of the names of these countries in light of the present world situation makes one wonder as to just how much reliance we can place on these sources in the next decade or so. It would be difficult to over-rate the importance of aluminum to our national defense, and due to the intermingling of dawsonite with the Oil shale, it becomes apparent that the early development of oil shale to obtain the dawsonite becomes PAGENO="0196" 192 FEDERAL OIL SHALE PROGRAM a matter of importance to national defense without even considering the need for the shale oil. The title problems are two-fold: First, there is the question of the disposition of the pre-1920 placer oil shale claims; and, second, there is now the question of the post-1964 dawsonite claims and sodium lease applications. With respect to the first, the Secretary of Interior stated in the February 21, 1967, hearings that the ". . . task of clearing away a half-century of legal underbrush will be time- ~consuming, vexatious and difficult. Bttt l~ a necessary prerequisite to the long- term development of the lands in question." In my opinion, the Secretary's eval- uation is both fair and accurate. In the past two Congresses I have introduced legislation which was intended to give the Secretary a bag of tools with which be could commence to dispose of the pre-1920 title encumbrances in a much more speedy fashion than through the long and cumbersome method of taking each claim to court. It would have been most helpful if the Department had given me and the Interior Committee the benefit of their thinking on such legislation; however, despite repeated requests for departmental reports none were ever received, nor were any comments, suggestion's or criticism's registered. As a lawyer, I am sure that you know and understand, Mr. Chairman, that such legis- lation is not easy to draw, because, contrary to a suggestion made earlier in the bearings, Congress must stay within the confines of the ConStitution with respect to the taking of private property interests, and so long as the "Bill of Rights" is a part of our Constitution, we cannot and should not act in a cavalier fashion by riding rough~shod over the property rights of individuals. We also have a duty to be fair, for so long as the final authority of the Government resides in the peo- ple, unfairness to one is unfairness to alL With respect to the second encumbrance on the land, that is the overlaying dawsonite mining claims and sodium lease applications, the issue is presently before the Secretary. In the present posture, Congress can be of little help or no help until the Secretary has made the initial decisions which he is required to make by law. But these decisions must be made before any long-range develop- ment program can be launched. On Tuesday, Dr. Orb Childs, President of the Colorado School of Mines, gave what I believe to be a very clear explanation of the need for an oil shale industry. As Dr. Child's pointed out, while we now have excess producing capacity that could now off-set our imports, our demands are growing at such a rate that our domestic production will be 4.2 million barrels per day short of our requirements by 1977. Dr. Childs based this upon a conservative estimate of 2 to' 3% per year increase in demand over the next decade. I believe that his estimate wa's on the conservative side for I would point out to the Subcommittee that our demand in 1965 was 3.59% greater than it was in 1964, and that in 1966 was registered a 4.8% increase in demand over 1965. I have some tables on oil consumption, production, imports, reserves and drill- ing activity, which were furnished to me by the Office of Oil and Gas which I believe are pertinent to this matter of need, and I ask that they be included in the record. I would like to direct your attention to the table showing total U.S. consumption and the table showing proved reserves of total liquid hydrocarbons. In comparing the total demand figures with the total proved reserves, including both reserves of crude oil and natural g~as liquids, a trend is apparent. Total demand in 1946 was 1,945,909,000 barrels and total reserves were 24,016,779,000 barrels; or, the total reserves were about 121/3 times the annual demand for 1946. By 1966 total demand h'ad increased to 4,397,469,000 barrels (about 126%) while total reserves had increased only to 39,780,254,000 barrels (about 65%); or, the total reserves were only about 9 times the annual demand. In other words, our demand rate increased 61 percent more than our reserves increa'sed. Increase's in reserves have not kept pace with increases in demand. I am not suggesting that we are out of conventional oil or that we will be in the next few years, but the trend is evident and if it should continue, and indications are that it will, we shall become a crude deficient country. As Captain Howard Mo'ore, USN, Director of the Naval Petroleum and Oil Shale Reserves underscored in his statement be- fore the Interior Committee on February 21 of this year: "It is obvious from the standpoint of national defense that if the Oil Shale Reserves are to make a significant contribution, there must exist at that time a viable oil shale industry." I think this is very true, and we must consider the lead-time involved in getting the oil shale industry into the economic mainstream of the energy industry. For example, if we assume that the oil shale resource could contribute just ten percent PAGENO="0197" FEDERAL OIL SHALE PROGRAM 193 of our present needs, and as I pointed out earlier, these fleeds are increasing at a rather rapid rate, based on 1966 consumption there would have to be a produc- tion of 439,746,900 barrels of oil per year. To fill this need it would require 24 retorts and upgrading with a daily capacity of 50,000 barrels. To put it another way, if we bad relied on oil shale to take care of just the increase in demand in 1966 over the demand for 1965 (approximately 203,723,000 barreLs), it would have required 11 retorts with a daily capacity of 50,000 barrels. A's has been pointed out earlier in the hearings, a single plant having a 50,000 barrel per day capacity involves an investment of $100 million or more. So we are talking about some very sizeable investments, and also we are talking about some very large operating expenses. As I said earlier, there would seem to be plenty of room for everyone sincerely interested in developing an oil shale industry both in terms of shale land and in terms of market opportunity. However, in the final analysis the need for and the emergence of an oil shale industry will be determined on a basis of economics. Oil shale will have to compete with other energy sources and fuels. If it cannot compete, other sources of energy will take over the market. This is as it should be. But it would be most unfortunate if oil shale's inability to compete was as a result of either government action or government inaction, because it would deny us the many benefits that could result from such an industry. Mr. Chairman, I think that all of us can agree with the basic objective of encouraging competition and preventing undeserved windfalls. But I should like to point out that an exclusive government development program would very likely result in a windfall to the large users of petroleum products, assuming that the price would be less if the government produced the shale oil, and I believe that this is an assumption that is not necessarily supported `by fact and experience in other fields. In effect, huge subsidies would be granted to the large users of petroleum by selling a commodity developed and produced with government capital, and sold at reduced costs, because the government would pay no state, local or federal taxes, and it would not distribute dividends to its shareholders which in turn would be taxable. Railroads, steamship lines, power generating companies, manufacturers, companies using large numbers of motor vehicles, in fact every company having large demands for petroleum or its products would be the disproportionate and primary beneficiaries of this Federal largesse. The benefits going to the average man on the street would be infinitesimal by comparison, if indeed there were any benefits at all. In addition, a government program or a quasi-government corporation pro- gram of research and development has the same basic flaw that turning the whole program over to a single company would have, that is that only one approach would likely be followed. This is because someone has to be iii charge and has to make the decision as to what approach will be pursued. I certainly would not suggest that this program be turned over to one company, and I doubt that any of the members of this Subcommittee would do so, because by doing so would be to deny the people of this country the benefits that can be derived from vigorous competition-that is the achievement of the best and most economical method of producing petroleum products. The benefits of competition come about through many different views on bow to do some thing and each view being pursued vigorously by its proponent. The best one will win supremacy, but that supremacy may be only temporary because it is constantly being challenged by new developments. As the Chairman well knows, this is the genius of competi- tion that has served us so well for such a long time. As the Subcommittee is aware, several different approaches are presently being pursued to achieve an economical method of extracting shale oil from oil shale. Some may appear to be more promising than others. But as even a cursory examination of industrial development will disclose, a later develop- ment-perhaps occurring in an unrelated industry-may cause the discarding of a process and the resurrection of another process which bad been formerly shelved. I noted with interest the listing which you attached to your opening state- ment, Mr. Chairman, which indicated that of the 500 largest iiidustrial corpora- tions in 1965, 20 of the largest oil companies were included. With 20 oil com- panies in such favorable financial condition, it would appear that the prospects of competition are good. It is also interesting to note that while automobiles are probably the largest consumers of the products of the oil companies, there are only four remaining manufacturers in this country. PAGENO="0198" 194 FEDERAL OIL SHALE PROGRAM Competition is an essential element of our economy, and I believe that this Subcommittee has performed a useful function in publicly airing the situation with respect to the prospective oil shale industry and its competitive atmosphere. I believe that when the record is complete, it will show that competition is present in oil shale, and that the prospects are for very vigorous competition in the future, providing we act wisely in making oil shale available to an emerg- ing industry. In this regard, the objectives set forth in the Secretary's five point proposal is a good initial step. I thank the Chairman and the Subcommittee for this opportunity to testify and comment on the matter before it, and I am confident that the Interior Com- mittee will find the record made here useful in its deliberations when it delves into the matter of oil shale leasing policy. Senator ALLOTT. The reason I am approaching this, Mr. TJdall, at this point, is that I think we are actually at the point here where we may lose the development of the oil shale industry. I have before me an editorial of the Denver Post, which has long been known for its pretty liberal point of view with respect to these things, of August 31, 1967, the title of which is "Oil Shale Losing Out to Coal," and I will ask, Mr. Chairman, that this be inserted in the record. The CHAIRMAN. Without objection, it is so ordered. (The editorial referred to follows:) [From the Denver Post, Aug. ai, t967} OIL SHALE LOSING OUT TO COAL The cavalry charge against oil shale, led by Harvard economist John Ken- neth Galbraith, appears to have hit home. The chances of developing oil shale are now poorer than they were a year ago. But what Gaibraith & Co. may have done is put coal in the driver's seat. American oil companies feel they must develop substitute fuels for Arabian oil. Shale oil looked like a good possibility until the economists began talking of protecting it from "another Teapot Dome." We've asked on this page many times where the evidence is that the U.S. In- terior Department is about to take bribes, a la Teapot Dome. The economists re- main silent on this matter. Still, they've managed by innuendo to create a shadow on oil shale; the re- sult is that Interior Secretary Stewart LTclall now appears more intent on not developing oil shale than on developing it. To some extent, we can't blame him for not wanting to stick his head in Galbraith's noose. But what the "tunnel vision" of Gaibraith and others fails to note is that there are perfectly respectable and legal methods of developing other minerals on public lands which have been in use for many years. Phosphates and other in- dustrial minerals can be developed on a lease and royalty basis. Firms that do so make a good deal of money and nobody shouts "Teapot Dome !" So it is only obvious that oil firms should turn to the tried and true mineral procedures for fuel and chemical resource developing. There are huge quantities of coal on public lands which have been developed under lease and royalty for many years and there is more availabl~, particularly in the West. By a commer- cially-proven hydrogenation process, this coal can be turned into gasoline and diesel fuel. And this is the direction oil firms are taking. Oil shale might have been attrac- tive six months ago. But we're inclined to think that oilmen are human enough to want to avoid stigmatization as robber barons for doing with oil shale what they can do with coal with everybody's approval. We're assured that closure of much of the private research effort at the Rifle oil shale experiment station is simply according to plan. Research has been com- pleted, so people are moving out. But we suspect that if the firms really wanted oil shale development they'd be expanding, not contracting, their shale research. Meanwhile there is a heavy play in coal leases all over the United States by oil companies. Humble Oil & Refining Co. leased 15,000 acres of coal land in Wyoming recently. One 5,000-acre block went to Humble for bonus bid of $165 per acre plus royalties of less than 25 cents per ton on production. PAGENO="0199" FEDERAL OIL SHALE PROGRAM 195 That is a lot different than the confiscatory royalty system advanced by Udall as a tentative approach to oil shale development. Oil shale is fantastically richer per acre than most coal seams but a firm doesn't have to sUbmit to public abuse to make its bid. There are more oil shale hearings scheduled in Congress in September. The Senate Interior Committee, headed by Sen. Henry M. Jadkson, P-Wash., is to follow the anti-trust committee hearings held earlier by Sen. Philip Hart, D-Micb. We hope the Jackson hearings are constructive; we'd hate to see oil shale lose out to coal simply because it was a larger windmill for Professor Galbraith's lance. Senator ALLOTT. One of the paragraphs reads as follows: So it is only obvious that oil firms should turn to the tried and true mineral procedures for fuel and chemical resource developing. There are huge quantities of coal on public lands which have been developed under lease and royalty for many years and there is more available, particularly in the west. By a com- mercially-proven hydrogenation process, this coal can be turned into gasoline and diesel fuel. In other words, without belaboring the point, I am very strongly of the opinion that we are at the point where, unless we can provide sufficient incentives to private industry, those people who would nor- mally be interested in the development of an oil shale process will turn to coal because of blocks put in their way, and that therefore, and as a result of this, our oil shale industry may be wrapped up for years or at least until the coal hydrogenation becomes uneconomic. It might even be wrapped up forever and completely bypassed in favor of other energy sources. I am sure the Secretary does not want to see this happen any more than I do. Mr. UDALL. Well, Senator, my best judgment-I may be wrong- but on the basis of the advice of my people, I seriously doubt at this point that the type of patent policy that we propose would be a serious impediment. Now some of the spokesmen for some of the companies may say so because they would prefer not to have it, but I do not think it is really going to be a serious impediment. As I say, I may be wrong, and I am willing to listen to arguments on this, but I do think that the long-term national interest in a vast resource-there is no resource like the United States oil shale in the world-requires that we have the best policy. Senator ALLOTT. Well, I should have included also in my statement about the coal the Athabascan Tar Sands. There is also an article in the Scientific American for Februray of 1966, a very comprehensive and fine article, about the development of the tar sands and oil shales, both, and I am raising this question with you now, because while I have not seen any of the statements that will be made, I would hope that these questions will be discussed by the industry when they appear. I think that is all I have at this time, Mr. Chairman. The CHAIRMAN. Thank you, Senator Allott. Mr. Secretary, I want to ask you, with reference to the proposed Federal recordation bill, which I introduced, on the filing of mining claims, whether or not it might be possible, at least on an interim basis, to limit its application to the States or counties involved in oil shale development? There has been considerable opposition expressed from some of the other States, and as an interim measure, I would ask whether or not the department would be willing to go along on that approach as a compromise in order to get some early action on the proposed bill and the present problem? PAGENO="0200" 196 FEDERAL OIL SHALE PROGRAM Mr. TJDALL. Well, Senator, this is a constructive thought. We think the law, a general law, would be very much in the public interest. You could even narrow it further to oil shale in these States. That, could be done to further eliminate controversy. I would like to see it enacted and I wish we could develop a consensus on this. I think the Congressmen and Senators from the three States, if there is any one thing I would ask them to help us with, would be the recordation bill, It will help us clear the decks. You want action. This is one thing you could do. Maybe we could work out a compromise, a consensus type compromise, and get a bill quickly through that would have limited applications. I think this is a very fine thought, Senator. The CHAIRMAN. I will ask the staff of the committee to explore this with the Secretary's staff and the appropriate departments and see if something can be worked out. Senator Moss? Senator Moss. Mr. Secretary, pursuing further this colloquy about the patenting rights to any system developed, suppose that there was in existence now a patent, unproved but patented, and the person then made a lease and tried it out and it worked. Would this patent then be open to the public by reason of the fact that he tried it out on Federal land? Mr. TJDALL. Well, no. In fact this may very well be the case, I do not know, with the oil shale corporation, the one group that is active in the field and have been doing field scale applications. They may have some patents. You may very well end up with several processes, as a matter of fact. This is probably the likely end result. But if someone has a patent, and they have done work on it, our patent policy does not apply that way. It is the patents that grow out of research and development activity involving a contribution of some kind by the Federal Government which our patent policy is designed to make fully available for use by the public. Thus, as to anyone who has obtained a patent unrelated to a Federal research support, we cannot reasonably ask them, as a matter of policy, to surrender existing rights they have. Senator Moss. By a contribution of the Federal Government, I take it that you mean more of a contribution than just leasing the land to them. Does this involve some monetary advance by the Federal Government? Mr. TJDALL. No. It is our view that with a resource as valuable as this, as unique as this is, that the land itself constitutes or is equivalent to the Federal Government putting actual appropriated money into this research effort. That is our rationale, Senator. That is our rationale of the justification of the patent policy, yes. Senator Moss. You indicate that there are about 30,000 acres that you would lease out under this research and development period, and this would be about 10 years. Is there anything magic in the 10 years? What if you got a breakthrough in the first year? Mr. TJDALL. No, the 10 years only is a limit, Senator. We want action. If it comes through in a year that is fine. The quicker the better. But we do not want to give out leases to people who do not want to move, do not want to get into an action program. So this is an action provision and not an inaction provision. If it turns out to be a year or 2 years, that is just fine and dandy with us. PAGENO="0201" FEDERAL OIL SHALE PROGRAM 197 Senator Moss. What you are saying is that if you get the extrac- tion method worked down to where the oil is competitive, you would shift at once to your policy of making leases for actual production. Mr. UDALL. The lessee would be able to move to the second stage; that is right. Senator Moss. But the limitation there is 5,120 acres to any one lessee. I think you said that about $15 million would be devoted to in 8~tu retorting research. Is that a limiting factor or just an estimate of how much you would develop? Mr. UDALL. No; this is an estimate, Senator. We laid out this pro- gram of Federal research and, of course, it will depend as it always does on what we can get appropriations for. But we felt that in the next 10 years the Federal Government, on its own, ought to pursue certain lines of research. I could have my people gi~ve you a presen- tation on this, and that we hope that we could get congressional support for research on the magnitude that we describe. Senator Moss. If this were done in conjunction with the Atomid Energy Commission, you would expect to use some of their funds I suppose. Mr. UDALL. Yes; in fact that amount is folded into the total that we gave you. Senator Moss. If I remember correctly, you said earlier that there is no objection or impediment to the State moving in if it wants to block up some of its lands or put its lands into private hands in order to conduct separate experiments or make leases for production right now; is that correct? Mr. UDALL. Yes. Senator Moss. Well, as the others are, I am pleased that there is some action in this area. It is indeed a very thorny area which presents a lot of problems and, although we should proceed with care, I also think we ought to proceed with a degree of alacrity in getting action. Mr. UDALL. Well, Senator, I made a conscious decision about a year ago, after my oil shale advisory board report was in and evalu- ated, that while I was Secretary I wanted to develop a policy, and I wanted to do it so that we could begin action on a sound basis. That is still my objective. We are not trying to create confusion or inaction. We are trying to lay the basis for real action, I can assure you. Senator Moss. Thank you, Mr. Chairman. The CHAIRMAN. Senator Hansen? Senator HASEN. Mr. Chairman, if I may, I would like to ask that my statement before the Hart committee be placed in the record at this point. The CHAIRMAN. Without objection, it is so ordered. (The statement referred to follows:) STATEMENT OF SENATOR HANSEN TO THE ANTmrnsT AND MONOPOLY SUBCOMMITTEE OF THE JUDICIARY COMMITTEE, U.S. SENATE, MAY 5, 11~M37 Mr. Chairman-and I feel that I can address you in more personal terms than that after the past several weeks of work-let me express my appreciation and the appreciation of my staff for being allowed to participate in these hearings before this Subcommittee. It has been an, education for all of us. Let me thank, PAGENO="0202" 198 FEDERAL OIL SHALE PROGRAM also, you Mr. Cohen, you Mr. Chumbris, and you Mr. Bangert for the courtesies and the help that you have extended to us. I am tempted, as a lawyer might be, to recap these entire hearings, in the manner of a "closing argument," but I'm not a lawyer and I find myself more in the shoes of a jurym'an who can, scarcely remember the name of the first sched- uled witness. So I will refrain from that temptation. I do think that this Sub- committee is to be commended for the excellent record that has been compiled and for the depths which you have explored. Let me if I may, confine my remarks to several of the major issues' and debates, if you will, which I see emerging from the entire record of these hearings. I do hope that the questions I have asked throughout the hearings will, upon reading, be relevant to these major issues. I view the two major questions that face our Federal government with respect to oil shale development as being "when?" and "how?" I say Federal government because I believe, and I am sure that you would agree, that this is a question which involves not only this Subcommittee, but many Committees of the Senate and House, as well as the entire Congress an~ several of our major Executive De- partments. I say Federal government also because this is a question which does involve all of the people of our country and it is our Federal government which is charged with properly representing our people. Lastiy, I say Federal govern- ment because I am firmly convinced that without the formulation. of a positive development policy on the part of our government we will pass into the 21st century and this resource will remain in the ground where it is of no benefit to our Nation. Perhaps, Mr. Chairman, you would ask the questions of "when?" and "how?" in the reverse order. But I believe that unless the urgent demand for the formu- lation of a government policy is made clear to the country, no one will ever bother to seriously consider the "how." Secretary TJdall testified before you, but unfortunately neither the Subcom- mittee nor the Secretary had the benefit of his Department's proposed leasing program which was still being formulated for the Secretary's approval. Last week the Secretary indicated that this proposed program was nearly ready to present to `the C~mgress' and to the public for scrutiny `and for comment, sug- gestions and objections from all quarters. I am hopeful that this tentative pro~ gram will be released before the end of this week. That would then bring us to the question of "how?" I am sure that the Subcommittee would agree that any debate on `a matter so large as public vs. private development of this resource would extend far beyond the bounds of this Subcommittee's purview. My strong faith in the merits of the private enterprise system does not need to be repeated here. If this resource is to be developed by private enterprise, and I see no reason why it should not, or, indeed, how it could be developed otherwise, then I believe that you and I, Mr. Chairman, are in basic agreement on the need to foster healthy competition in this new industry. I agree that this Subcommittee's principal concern should be to encourage the entry of as many parties as possible into this new industry. This simplifica- tion is qualified, of course, to the extent that the industry must pass through a variety of stages, not all of which can be foreseen at this time. I would emphasize my use of the word "possible" while taking into account the high cost of entry if it proves that shale oil can only be produced by traditional mining and above ground retorting techniques. In addition, it is obvious that any entrant into the field of commercial shale oil production must first be prepared to sustain a major long-range research and development program. Further, I would remind this Subcommittee, as I have tried to do often throughout the conduct of these hearings, that it is not enough to speak merely of competition among participating parties in an oil shale industry. We must recognize, and by we I mean all of the American people, that on this matter the ljnited States is in competition with the world. As has been pointed out to the Subcommittee, the province of Alberta, Canada, will be pumping crude oil from the Atha'baska Tar Sands into United States and world markets by Sep- tember of this year. In my maiden speech on the Senate floor, which is a part of this record, I tried to outline some of the dangers which flow from this coun- try's reliance upon foreign sources of oil. Tt is not a matter to be taken lightly, that the only' private company in the United States which now expects to have a 50,000 barrel a day shale oil operation PAGENO="0203" FEDERAL OIL SHALE PROGRAM 199 on line by 1970, almost fell into the control of the French go'~ernment less than a month ago. I am speaking of The Oil Shale Corporation whose representative Mr. Winston has recently testified before this Subcommittee. I suggest to the Subcommittee that the most pressing questions before the Congress are not questions of "why" or "why not" certain companies have sought to develop our oil shale resources~ I am afraid that it is as idle for us to speculate about various corporate decisions, both part and future, as it is to ask each other bow many angels will dance on the head of a pin. The more pressing question before all of us is how we might promote the development of this resource. The questions which I believe the Chairman has ably raised concerning the construc- tive effects competition could play during the process of this promotion are, I believe, valid and necessary questions in the context of the greater dialogue. But let us not become so preoccupied with discussing the potential for monopoly in an industry which as yet does not even exist that such an Industry is forever discouraged from setting its tender feet into the swim of the market place. I was tempted to say, "let's not throw the baby out with the bathwater." But that doesn't fit. As yet, the baby hasn't even been allowed to get into the bath. I submit to this Subcommittee that we will be doing a great national dis- service if government regulation in the name of "antitrust" serves to prohibit the emergency of a new industry in this area. Such a course, instead of stimulat- ing competition, would prevent it. That would indeed by a Pyrrhic victory in the name of some confused and doctrinaire ideological cause. Senator Hruska has brought my attention to an excellent article by Max Ways which appeared in Fortune Magazine in 1966 and again in 1967. Mr. Ways, in the article entitled "Antitrust in an Era of Eadical Change", discusses the debilitating effect of reactionary and out-dated antitrust policy. If I may quote him he says, "But this thing, as they used to say in Hollywood, is bigger than all of them. The reactionary side of antitrust has a momentum that is built into court decisions, congressional investigations, and the cliches of public discussion . . . The place to clarify a fundamental national policy is Congress." In discussing the course of our future policy Mr. Ways had this to say: "We cannot know that the future requires big corporations, any more than we can know it will be best served by small ones. We can know that the future requires innovation and flexibility and that the market, including the merger market, provides a better framework for them than central go~rernment planning would. We have three choices: we can substitute planning for the competitive market; we can keep the market, while distorting its action by government in- tervention on the false premise that the vigor of competition is determined by the number and size of competitors; or we can recognize that we are moving, year by year, into a more truly competitive and more innovative society in which we will not need and cannot afford the restrictive side of antitrust." Many witnesses who have testified in these hearings expressed particular concern for the research and development phase* of many contemplated leasing procedures. In some of his earlier remarks, the Chairman drew certain analogies between oil shale development and the development of a needed national weapons and space system. With that analogy I cannot agree. A look at the history of this country's free enterprise system would hardly lead one to believe that mas- sive government involvement in research and development has been a "tried and true" method except in extreme situations which often have involved a national emergency. Indeed, I believe my principal difference with the Chairman throughout these hearings comes on this point. We have before us a tecbnologcial problem-how to get oil and other possibly valuable associated minerals out of oil shale through a commercial process which renders these products valuable in the market place. Up until the present time, we know that the chief problems in this illusive competitive process will be questions of mining and chemistry. In neither of these areas does our Federal government have any particular competence. Indeed, the competence, and I might add genius needed for this development lies within the private sector. I believe that for this industry to properly develop we will ~ee the dramatic formation of new corporations. These new figures on our private industry scene must be prepared to put together a variety of capabilities-in mining, in chemical engineering, in solid waste disposal and In the, as yet undefined, capability to derive high value from the newly recognized aluminum bearing carbonates. The combination of these capabilities, I believe, can only come from a responsive and innovative private sector. PAGENO="0204" 200 FEDERAL OIL SHALE PROGRAM The government does, however, have a clearly defined responsibility for re- search in its role as landlord. That responsibility is to determine by core drill- ing and by other geologic exploration methods the nature and the extent of the resource which lies below its lands. As so many people have pointed out to me since these hearings began, it would be both uneconomical and ineffectual for the government to go beyond that and to attempt in its own right to develop a technology for the commercial production of oil shale and associated minerals. This Subcommittee has heard testimony on the variety of techniques which might be used to achieve com- merical production. Further, it should be clear that the "pay dirt" in oil shale will not be hit through one "break through" but rather will require in all prob- ability a number of break-througbs on a number of fronts. For any one company to successfully pursue any one technique will obviously require a continued research and development effort. Research, like education, never stops. It must always continue to keep pace in the competitive market place. I think that it is also clear whenever new technology must be developed that the end product of that technology is of less importance than the presence of a sustained cadre of men and women dedicated both to the development of the technology and its application. The suggestion that the Federal government as- sume the role of a technologcial innovator completely overlooks this fact. Tech- nology, without the presence of trained people, would be meaningless. It would be idle and wishful thinking to believe that the Federal government could produce all of the technological keys necessary for the unlocking of oil shale and then at some given point in time deliver over the keys to a private company adjudged "qualified" by the government. I submit that the results which I believe all of us seek could never be achieved in that fashion. A review of the record developed by this Subcommittee reveals that it has been parties other than the Federal government which have so far brought the greatest progress to oil shale development. The excellent testimony of Professors Mead and Steele have been most constructive in developing an informed record before this Subcommittee. Those gentlemen have done their work completely outside the ambit of federal jurisdiction. Further, as I have tried to show in the record, the significance of dawsonite has only been brought to light through the efforts of private individuals who sought specifically to find value in the vast western oil shales other than the possible value of the known oil contained in those shales. The genius of these men is that they focused the attention of the world on a mineral which lay intermixed in federally owned oil shalea but had been completely overlooked by the Federal government for the past 50 years. In addition, it has been a small and independent company which testified before this Subcommittee to the effect that it intended to be the first commercial producer of shale oil in this country. In closing, Mr. Chairman, let me say that I sincerely hope that the loose talk over the value of this resource has been somewhat clarified. Arithmetical differ- ences, which Senator Douglas and I obviously have, aside, let me quote Charles Stoddard, former Director of the Bureau of Land Management, in his testimony before you when be said "unless we have operating experience to show the difference between the costs of this resource and its market price it is impossible to determine a value." All values which have been broadly discussed before this Committee and in the newspapers across the land are but conjecture. Senator Allott, much better than I, placed before this Subcommittee correct testimony concerning the "possible" value to the nation of this resource. I hope that those who would lead people to believe that our national debt could be dissolved in shale oil will desist from spreading such inaccuracies. I deplore the references to "scandal" and "giveaway" which has appeared in both our congressional investigations and in editorial comment by certain news- papers across the land. To resort to such innuendo is, I believe, as scandalous a misuse of public debate as any alleged scandal which might be conjured up. Mr. Chairman, your Subcommittee has performed a great service in sponsoring public debate on the oil shale question. This is' a public issue. I also commend Secretary of the Interior TJdall, and his Deputy Solicitor, Mr. Weinburg, for their candid comments with resici~ect to the public nature of this issue. Some have made the charge that the public has been "uninformed." My direct answer is that it is the responsibility of the politician and of our press to inform the people of this country. But this mandate gives us no license to "misinform." I hope that misinformation will not be resorted to in the future. PAGENO="0205" FEDERAL OIL SHALE PROGRAM 201 If we are agreed, Mr. Chairman, that our oil shales and associated mineral deposits are a potential national asset, then I think it must follow that the development of these resources should be promoted as soon a~ possible. A I have said before, our failure to develop these resources would be a great national loss. To discuss the antitrust implications of an undeveloped resources would mark us in history as so many idle talkers. We have waited almost 50 years for the formulation of a national oil shale policy. I am hopeful that the Secretary of the Interior's proposed leasing regulations will be the first Step in a series of many leading toward eventual development of this resource. I am hopeful that we in the Congress can help our privute enterprise system get on to the task at hand. Senator HANSEN. I would also like to ask that a law review article entitled "Oil Shale-The Need for a National Policy," which appeared in volume 2, No. 1, 1967, in the Land and Water Law Review, be printed at this point in the record. The CHAIRMAN. Without objection, it isso ordered. (The article referred to follows:) [From the Land and Water Law Review] OIL SHALE-THE NEED FOR A NATIONAL PoLIcY (By David D. Dominick*) (This student article, which won the RockyMountain Mineral Law Foundation Prize for research and scholarship in 1966, is presented to express a viewpoint concerning the importance of the vital natural resource of oil shale and its proposed development. The author outlines in detail the past and current situa- tions with respect to the development of this resource and submits that there is no federal policy concerning oil shale development. Mr. Dominick presents a comprehensive analysis of the many problems Congress will have to consider when it takes up the task of establishing leasing procedures for the future com- mercial development of federal oil shale lands.) INTEODIJOTION "Oil Shale !" is a cry that is firing the imaginations of many people today. It is a cry not unlike that of the forty-niners who staked their hopes on the promise of "gold in them hills" over a century ago. Both cries remind us that it is America's natural resources which have made her the wealthiest nation in the world. Oil ~ihale has come to represent a special hope for the people of Colorado, Wyoming and Utah. For in these three states lies a tremendous, but as yet un- used, natural resource. By some estimates there are 1.5 trillion barrels of oil located in the Green River Formation of Colorado alone. It is estimated that 280 billion barrels of oil 1 could be recovered from the richer Colorado formations by using present technology. Compare this to the other known reserves of crude oil-31 billion barrels-in the United States. The potential value of shale oil is indeed staggering. Recoverable oil in the shale deposits of the Green River Formation has been valued at $2,577,000,000,000.2 Yet development of this resource is still only a hope. A century ago the forty- niners sought their gold free from any government direction or control. At that time the "free-miner" tradition prevailed. But today a full-scale oil shale in- dustry cannot come into being without the formation of a national policy per- mitting the commercial leasing of federal oil shale lands. Appro~imate1y 72 per cent of the oil shale acreage in Colorado is in the federally owned public do- main, and this federal land contains the richest portion of the Green River For- "Shale Oil: From Potential to Production," Speech by C. B. Reistle, Jr,, chairman of ;h~ Board, Humble Oil and Refining Co., before the 95th annual meeting, AIME, New York, ~.Y., March 1, 1966. ~ Om AND GAS JOURNAL, p. 65, March 9, 1964. *Legjslatjye Assistant for Mllward L. Simpson, U.S. Senate, Washington, D.C.; B.A. 960, Yale University; J.D. 1966, UnIversity of Colorado; member Wyomii~g and Colorado ars. PAGENO="0206" 202 FEDERAL OiL SHALE PROGRAM mation, containing approximately 85 per cent of the formation's known oil shale reserves~3 Because of the great expense of entry into this new industry, private enterprise needs some assurance that these reserves will be made available for commercial development. Thus, the federal government holds the key to unlocking the benefits of this great resource. Oil shale has recently received increasing attention in the press,4 in the courts,5 and in Congress.6 Such attention is even reaching the proportions of sensatioual- ism. In the first session of the present 89th Congress Senator Douglas of Illinois introduced a measure which read: "A Bill to Retire the National Debt with Royaltie,s from Publicly-owned Oil Shale Land." This proposal has predictably enraged many in the western states.8 As a result, there is an increased public awareness that, while this natural resource awaits development, clearer and clearer battle lines are `being drawn between "Big Business" and "Big Government." Representatives of the pe- troleum, mining and chemical industries are asking that private enterprise be given the opportunity to develop oil shale.' Others suggest that oil shale should be developed, if at all, by a governmentally owned and operated monopoly.1° The federal oil shale lands are presently under the administration of the Department of Interior. Disposition and leasing of these lands could be done today by the Secretary of Interior. But the prospects for such affirmative action by him are poor. "Delay" has been the only recognizable "policy" to come out of the Interior Department in years.U 3 vary as to the proportion of federal ownership depending upon the geo- graphic limits used in delining the Green River Formation. John B. Tweedy, counsel for The Oil Shale Corporation (TOSCO), (speaking at the University of Colorado Law School In November, 1965) estimates that 64% of the surface contaIning 84% of the oil reserves of the Green River Formation lies in the Public Domain, with 21.8% of the surface con- iaining 10% of the reserves on patented lands, and 13.5% of the surface containing 4.9% of the reserves on unpatented and presently contested lands. In Senate Hearings It was claimed that approximately "70% of the deposits in the Green River formation, containing some 80% of the oil is on land swned by the Federal Gov- ernment." Hecsrisvgs on Oil Shale Before the Senate Committee on Interior and Insular AffaIrs, 89th Cong., 1st Sess. 3 (1965). The Department of Interior, reporting on the oil shale policy problem said: "To date, Investigations of Utah's oil-shale deposits have not been nearly as compre- hensive as those of the Colorado deposits, and the deposits In Wyoming have been explored ieast of all. "Of the entire 1,300,000 acres of land In the oil-shale area in Colorado, 582,000 acres (Including Naval Reserves) are federally-owned, 380,000 are privately-owned, and 338,000 are lands in unpateuted mining claims, Approximately 1,000,000 acres are underlain by oil-shale deposits and the remainder Is contiguous non-shale bearing land, principally the areas of stream valleys between oil-shale outcrops. Virtually all of the central portion of the Piceance Creek Basin Is federally-owned land. Federal oil shale averaging at least 25 gallons per ton and 15 feet or more thick probably average about 1,000 feet in thickness where the shale of this grade on privately-owned land probably averages a little over ioö feet. "Of this previously mentioned 1.3 trillIon barrels of oil In deposits containing 10 gallons or more of oil In the Piceance Creek Basin the privately-owned oil shale represents about 100 billIon barrels of shale oil and the unpatented mining claims represent about 100 billion barrels. The remaining lands are federa1ly~owned and contain deposits of about 1.1 trillion barrels in place. Based upon a shale grade of 25 gallons per ton the oil potential would be half of these quantities." Dzp'T. INTERIoR SYNoPSIs, Tas OIL SHALE PoLIcY PROBLEM 21-22 (1964). Duscha, "Bonanza in Colorado-Who Gets It?," Atlantic Monthly, Mar., 1966. ~ `The legal ~tatus of unpaten,tecl and acbninlstratively contested oil shale claims made under the Federal mining laws is being adjudicated In several cases presently pending before Judge Doyle of the Federal District Court, Denver, Colorado. The principle "test" ease Is The Oil Shale Corp. v. TJdall, Civil Docket No. 8680, which is now in the pre-trial stage. This case, along with numerous similar ones accompanying it In the District Court seeks a mandamus directing the Secretary of the Interior to discharge his duties under the Mineral Leasing Act of 1920 and to withdraw invalid administrative decisions cancelling rights' to, or denying patents to, unpatented claims'. Alternatively the plaintiffs seek a declaratory judgment interpreting the mining laws. Defendant's motion to dismiss has been denied. See also, Reidy, Do Unpatented Mining Claims Eccist?, 4,3 DENvER LJ. 9 (1966) and Lobr Conclusiveness o~ United S(ates Oil Shale Placer Mining Claim Patents 43 DzNvza L J. 35 (1966). 112 CONG. Rzc. 4901 (daily ed. Mar, 7, 1966) (remarks of Senator Dominick). Also, Senate Heairings on Oil Shale, supra vote 3. "S. 2708, 89th Cong., 1st Ses's. (19651. 8Wyoming `State TrIbune, Oct. 25, 1965 (editorIal), p. 5. `Reistle, supra note' 1. 14) Dtiseha, supra note 4. 11 See Senate Hecjrings- on Oil Shale, ssrpra note 3, at 3~6L See Ely in Conservation or O~1 and Gas, ABA SEcT. M & NRL 30'R (Sullivan ed. 1955), See also, `The Depyer Post, Mar. 20, 1965, "The Dispute Over OIl Shale," p. 9. where James H. Smith, Jr., of Aspen, Colorado: a nationally recognized leader in economic development, decries the delay in the develop meat of oIl shale. PAGENO="0207" FEDERAL OIL SHALE PROGRAM 203 It is this writer's opinion that such delay should no longer be condoned and that a natiQnal oil shale policy should be formulated as soon as possible. But the public would be foolish to hope and expect that such a policy will ever be forth- coming from the Executive Branch of the ~edera1 government, in general, or from the present Administra~tion, in particular. flather, oil shale is a problem for the legislature. It is Congress which now holds the key to oil shale development. This paper will examine the role of the federal government in the formulation of a national oil shale policy. The formulation of any such policy now, however, must take into account past events and past policies. In this regard, Part One of this paper will be a historical review of government control in the petroleum industry as a whole. Then, Part Two of the paper will describe the oil shale situ- ation as it presently exists arid will outline the various questions of policy which must be considered by Congress. Some of these questions concerning the future of oil shale are extremely complex and have proved difficult even to define in the past.'2 But this problem is aggravated by the fact that many who have successfully opposed'1 oil shale development in the past have never been required to make public the real reasons for their opposition. To date, those who favor oil shale development have been only able to guess at the possible rationale of their opponents. This paper at- tempts to force any such rationale into the open. Perhaps those who have inhibited oil shale development thus far-while preach- ing the "new economics"-have actually feared that to move ahead with this resource development would .be to dangerously "rock the boat." Perhaps they fear upsetting the uneasy balance between "Big Business," particularly as represented by the petroleum industry, and "Big Government" as it is being practiced by the present Administration. Perhaps the opponents fear that the creation of a private oil shale industry might weaken the government's present attempts to assume more and more control in such areas as the oil import program, anti-trust and interstate commerce regulation, and federal lknd control. But in each of these areas, the exercise of federal power ~annot be justified simply for its own sake. Policy can only be formed after an examination of the merits. Those advocating the development of oil shale should be given the oppo~- tunity to show that such resource utilization, under proper government regulation, would be in the Xest interests of the nation. Those who propose such development by private enterprise have a right to demand good reasons from their opposition, on a point-for-point basis, why such development should not proceed. The burden now should be shifted to those who would obstruct oil shale development. There are those who have been critical in the past of the petroleum industry as a whole.'4 But such antagonism should not ~e allowed to prevent the birth of a new industry. Therefore, it should be kept in mind that an oil shale industry, if and when it is allowed to come into being, will be a "new business." And while problems will be cited in Part One which have traditionally plagued the federal government in its efforts to regulate the petroleum industry in the past, the government now has an opportunity to create original answers with regard to a new oil shale industry. If there is cooperation between the representatives of private industry and the Department of Interior in seeking these answers, then Congress will ~e greatly aided in its future policy formulations. PART 1-A fflsToIuoAL nrvinw or GOVEENMI~T CONTROL IN TILE PETROLEUM 1NIflJSTEY The petroleum industry (the natural gas industry will not be discussed in this paper) is unique among the major businesses of this country in that it has enjoyed comparative freedom from direct federal regulation. In the first place, federal anti-trust legislation has had little restrictive effect upon the exploration, pro- duction and refining phases of the petroleum industry (although retailing of oil produ~ts has come under some anti-trust litigation in recent years). Secondly, the domestic production of crude oil has been regulated by so-called "conservation statutes" of state, rather than federal, government. And finally, special note should be taken of the fact that less than 5 per cent of the petroleum produced in this country has been subject to the federal mineral and land laws. `1Mock. The OiZ shale Advisory Board, 43 DENVER L.J. 47, 70 (1966). 13 See Duseha, supra note 4. See also the Indiv1duce~ Views of J. K. Gaibraith In the INTERIM REPORT OF THE OIL SHALE ADVISORY BOARD TO THE SECRETARY or THE INTERIOR 20 (Feb. 1965) (transmitted by letter of chairman, Joseph L. Fisher, Feb. 15, 1965), Repro- duced in this issue of the REVIEW supra p. 50. `~ Gaibraith, Individuai Views, INTERIM REPORT OF THE OIL SHALE ADVISORY BOARD, supra note 13, at 21, 22. PAGENO="0208" 204 FEDERAL OIL SHALE PROGRAM On the other hand, the federal government is imposing very important indirect controls over the petroleum industry through the exercise of its national defense and foreign commerce powers. Part One of the paper will discuss all these forms of government control hi the ~elief that each must be ~onsidered by Congress in the formulation of any future oil shale policy. It should be remembered that none of these controls are absolute and all are subject to change. Therefore, the problems of federalism will also play a part iii any policy considerations. Relationships between state and federal governments and between private industry and these governments must always ~e ttiken into account. Critics of the petroleum industry argue for increased federal control over that industry in the future. On the other hand, oil-producing states have resisted such a move and seek to preserve the regulatory powers which have been tradi- tionally reserved to them. These problems of federalism will be of great signifi- cance to an emerging oil shale industry. A. Federal versus State powers 1. Federal anti-trust regulations The early history of the oil industry was marked by severe competition. Large combinations exercised a monopolistic control through their ownerrhip of ~e- fineries and oil pipelines. Finally, the great Standard Oil Trust of John D. Rockefeller was dissolved by Sherman Act prosecution in 1911.15 Since that time, there has been only minimal anti-trust regulation over the exploration, production and refining phases of the petroleum industry.'9 2. Demand estinaates and prodewtion control under State "conservation statutes" As was indicated at the outset of Part One, the production of crude oil is presently being controlled by state govermnents." It is due to what some describe as an "unfortunate legal accident" that Presi- dent Coolidge was stymied in 1924 in his attemps to establish a Federal Oil Conservation Board. For during the early stages of the development of the oil industry it was an accepted constitutional principle that the production of oil 18 lay outside the purview of the interstate commerce clause of the federal consti- tution. Meanwhile, and as early as 1914, oil-producing states had passed pro- rationing conservation statutes which in the decades that followed underwent a stormy history of attempted enforcements and evasions. These state statutes provide that production quotas may be placed on the oil wells of a state The productions quotas are set on the basis of estimates of demands, and for this reason critics have labeled the proration system as being nothing short of "ad- ministrative price fixing." Nevertheless, in 1932, the Supreme Court overruled lower federal court injunctions against the enforcement of these state statutes and declared in Uhamp~in Ref. Go. v. Gorporatio~a Gornm'n `~ that state pro- ~ Standard Oil Co. v. United States, 221 U.S. 1 (1911). 19 In the 1950's, some vertically integrated major oil companies were obliged to accept consent decrees which were based on charges of violations of both sections 1 and 2 of the Sherman Act at all levels of the companies' operations. On the production levels the decrees generally enjoined "the operation of agreements among the consenting defendants to control crude production for the purpose of fixing prices, and similar agreements among themselves fixing prices to be paid for crude oil or charged for refined products." United States v. Standard Oil Co. of California, Civil No. 11584-C, S.D. Cal., May 12, 1950; United States v. Standard Oil Co. of California, TRADE Rae. Rap. (1959 Trade Cas.) ¶ 69399 (S.D. Cal. June 19, 1959). 11 The most recent Congressional approval of the Interstate Oil Compact is to be found in Pub. L. No. 86-143, Aug. 7, 1959, 73 Stat. 290 (1959). 18 By contrast, the natural gas industry did not begin to flourish until World War II, at which time it was held-from its inception-to be subject to the Interstate Commerce power of the federal government. That power has served to make the natural gas industry one of the most heavily regulated enterprises of the present day. A discussion of this regu- lation, and of the many acts and cases by which it has been imposed, is beyond the scope of this paper. 19286 U.S. 210 (1932). PAGENO="0209" FEDERAL OIL SHALE PROGRAM 205 rationing statutes were constitutional.2° Since that time the courts have uni- versally upheld the statutes as legitimate "conservation" measures.21 A federal measure instituted under N.R.A. and serving to enhance the enforce- ment of state production control `~ras the provision for "forecasts of demand." Initia1l~r a Petroleum Administration Board, partially composed of representa- tives of the industry, advised the Secretary of Interior of demand forecasts, Later the Bureau of Mines, itself within the Department oi~ Interior, began to make these forecasts. This picture is continued to this day.22 Neither the monthly nor annual forecasts of the Bureau of Mines possesa authority 23 binding on state production-control agencies, but they are helpful and are given considerable weight by state authorities in setting their production quotas. 3. The critics Economists, legal scholars and political commentators have been outspoken critics of the present system of production control under state "conservation statutes." Eugene Rostow, former Dean of the Yale Law School, claims that the Bureau of Mines forecasts of demand [and the state quotas which follow from it] depend on a concealed premise of price stability. Their effect is to state how much or bow little crude oil need be produced to permit prices to remain fixed.24 Rostow asserts that such demand estimates work like the statistical service condemned in the Sugar Institute,H Maple Flooring20 and American Column d Lumber27 anti-trust cases. Rostow proposes a total "reorganization" of the oil 2°The Court upheld the Oklahoma market demand statute, attacked as repugnant to the due process and equal protection clause, as a reasonable exercise of the state police power to prevent unnecessary loss, destruction, or waste. One of the most outspoken critics of the oil Industry as a whole, and of national policies concerning it, has been Eugene Rostow In his book A NATIONAL POLIcY FOR THE OIL INmJsTav (1948). At page 29 of his book Dean Rostow calls the conservation premise upon which the Champlin case rests as "entirely untenable." Nevertheless, as late as 1950, the Supreme Court has been unmoved by such a point of view as advocated by Rostow. In Cities Service Gas Co. v. Peerless Oil & Gas Co., 340 U.S. 179 (1950), the Court dismissed the due process and equal protection Issues In a case Involving natural gas, stating as follows: "It Is now undeniable that a state may adopt reasonable regulations to prevent economic and physical waste of natural gas. This court has upheld numerous kifids of state legisla- tion designed to curb waste of natural resources and to protect the correlative rights of owners through ratable taking, . . . or to protect the economy of the state. . . . These ends have been held to justify control over production even though the uses to which prop- erty may profitably be put are restricted. "Like any other regulation, a price-fixing order is lawful If substaiItlally related to a legitimate end sought to be attained. . . . In the proceedings before the Commission In this case, there was ample evidence to sustain its finding that existing l~w field prices were resulting In economic waste and conducive to physical waste. That Is a sufficient basis for the orders Issued. It Is no concern of ours that other regulatory devices might be more appropriate, or that less extensive measures might suffice. Such matters are the province of the legislature and the Commission." Id. at 185-86. ii For instance, Wyoming's Oil Conservation Law enacted In 1951 reiuis as follows: "It Is not the Intent or purpose of this law to require the pro-ration or distribution of the production of oil and gas among the fields of Wyoming on the basis of market demand. This act shall never be construed to require, permit or authorize the commission, the supervisor, or any court to make, enter, or enforce any order, rule, regulation or judgment requiring restriction of production of any pool or of any well to an amount less than the well or pool can produce In accordance with sound engineering practice," Wro. STAT. ~ 30-229 (1957). 22 In addition, the Bureau of Mines was directed by the Presidential Proclamation of March 12, 1959, to provide the Oil Import Administration with periodic forecasts of domestic demand and production to assist the Administration in establishing import quotas. 24 Fed. Reg. 1781. 23 Indeed, such critical writers as Rostow (see note 20 supra) claim that "the Bureau of Mines estimates, the keystone of the entire plan, are without support in substantive legisla- tion. No statute prescribes standards or policies' for guiding the agency in its determinations of permissible supply." Rosrow, op. cit. supra note 20, at 20. 24 Rosrow, op. cit. supra note 20, at 27. Compare this charge to the language of the Inter- state Oil Compact, Article V: "It Is not the purpose of this compact to authorize the states joining herein to limit the production of oil or gas for the purpose of stabilizing or fixing the price thereof, or create or perpetuate a monopoly, or to promote regimentation, but is limited to the purpose of conserving oil and gas and preventing the avoidable waste thereof ~vithin reasonable limitation." 2~ Sugar Institute, Inc. v. United States 2917 U.S. 5~3 (1936). 24 Maple Flooring Mfgs. Ass'n. v. UnIteiI States, 21618 U.S. 563 (11925),) 27 American Column & Lumber Co. v. United States, 257 U.S. &77 (192t1). PAGENO="0210" 206 FEDERAL OIL SHALE PROGRAM industry by Sherman Act prosecutions aimed at dissolving oil "monopolies" on both horizontal and vertical planes.3° Writing in 1059, economists Melvin de Chazeau and Alfred Kahn are gen- erally of the same view~3° They note that the Texas Railroad Commission in arriving at its production quotas anticipates imports and oil produced in states without production controls. "By thus allowing for estimated supplies be- yond~i'ts jurisdiction, Texas, In effect, `brings the total available supply, in- cluding Imports within the principle of prorationing to market demand." ~° On the other hand, Ralph Oassady concludes from hi's lengthy study of price making and price behavior in the petroleum iI~dustry that price competition, while not "perfect," Is sufliclentl~r keen at all levels of the industry.11 In this he follows Professor Bain, who wrote between 1944 and 1947.32 Zimmerman 23 takes a middle position and advocates much less drastic reforms in the area of conservation regulation than is proposed by de Chazeau and Kahn3° or by Rostow. Before it can formulate any policy for the development of oil shale, Congress should examine the conflicting points of view of these various writers and make its own finding of bow best to regulate oil production in this country. Future supply and demand estimates for oil will be one set of crucial qeustions facing Congress. Further, it must receive some estimates of the quantities of shale oil which, could be phased harmoniously into the future domestic supply stream. With `these figures `before it, Congress must ask: "What effect, if any, should the present system of production control have upon the production of shale oil?" The question might be asked more explicitly: "Should the Texas' Railroad Commission be permitted to retain its position of power with respect to pro- duction control once oil shale is introduced into the domestic market?" Perhaps Congress will determine that the present system of production control should remain in effect and that the Texas Railroad Commission should be permitted to count shale oil simply as another source of `supply-like imports-in arriving at its demand estimates. Perhaps Congress will decide that the development of oil shale, and other factors, now necessitate some of the reforms advocated by the critics of the present system and that the time has come for federal, rather than state, control of domestic oil production. All these are questions which only Congress can properly answer. B. The Fe&IraZ Government as ~andowiurr 1. La'iui laws i~ dhrono'logy In discussing the exercise of the government's powers in its capacity as land- owner, it will be most convenient to present those land laws relevant to oil shale in a chronological order. 1780. The `Continental Congress of 1780 created the "public domain" by a resolution which read that: "The una'ppropriated lands that may be ceded or relinquished to the United States, by any particular states . . . shall be disposed of for the common benefit of the Uni'ted States, and be settled and formed into distinct republican states, which shall become members of the federal union, and shall have the same rights of sovereignty, freedom, and independence as the other states. . . ." ~ One of the many compromises made by `the confederating states was their agreement to relinquish their western territorial claims to the new United States. Thus they created the public domain and provided the federal regime with a source of revenue to pay for the Revolutionary War. Later, the territorial boundaries of the United States were to be completed by additions to the public domain through purchase, treaty and conquest. 1788. Article IV, Section 3, Clause 2 of the Constitution vests Congress with the power "to dispose of and make all needful Rules and Regulations relating to `the Territory or other Property of the United States." 3° RosTow, op. cit. suprs note 20, at 123. 3° n~ CIIAZEAU & KAHN, INTEGRATION AND COMPETITION IN TIlE PETROLEUM INDUSrRT (1959). 3OJ'~j at 123. ~ CASSADY, PRIcE MAKING AND PRICE BEHAVIOR IN THE PETROLEUM INDUSTRY 334 (1954). 31BAIN, `TIlE ECONOMICS OF THE PACIFIC COAST PETROLEUM INDUSTRY (1944-d7). I3 ZIMMERMAN, CONSERVATION IN THE PRoDUcTIoN OF PsmOLEure (1957) 3° They advocate federal legislation requiring mandatory utilization. DR CHAZEAU & KAHN, op. cit. supra note 29. ~~18 JOURNALS OF THE CONTINENTAL CONGRESS 915 (Ford & Hunt elI. 1904-37). PAGENO="0211" FEDERAL OIL SHALE PROGRAM 207 An~y rights, therefore, to oil or mineral deposits located within property owned or controlled by the federal governmbnt may be acquireU only pursuant to legislation enacted by Congress. 1872. The Mining Act of 1872 codified p~e-existing local thining customs and allowed an outright federal grant of title to mineral-bearing lands by fee simple patent. 1897. In 1897 "an Act to authorize the entry and patenting of lands containing petroleum and other min~eral oils under the placer mining laws of the United States"2~ made it clear that petroleum was a locatable mineral, and until 1910 thousands of acres in California, Wyoming and other western States were patented as a result of petroleum discoveries. However, the general mining laws ~ere ill suited to the proper development of the oil industry and contributed to its instability in the early stages. Under these laws the common law rule of capture, coupled with the legislative demand for discovery, acted as a stimulant to excessive and wasteful production of petroleum. 1910. Conservation sentiment was on the upsurge durii~g President Taft's administration, and in 1909 most of the remaining public domain was withdrawn by Executive Order from petroleum entries under the mining laws. These with- drawal orders wei~e confirmed by the Picbett Act of 1910.~ 1920. During the decade that followed President Taft's withdrawal orders conservationists struggled with those representing the "free-miner" tradition in an effort `to develop a federal petroleum land policy. ¶t'he i~esult was the Mineral Leasing Act of 1920 ~ which represented compromises from both sides. The 1920 Act represented a radical policy shift from the outright granting of title to federal lands and minerals `by fee simple paten't to a policy which allowed the development of federal lands under a lessor-lessee relationship. Nevertheless, in retrospect the Mineral Leasing Act does s'how a legislative `intent to' allow for the development of petroleum by private industry. The Act likens the federal government to any other private owners of minerals who' grants an oil and gas lease on his lands, and it contem.plate;s that l~asing and development will be by private, rather than public, hands. A paradox exists, however, for despite the large acreage of the public domain available for leasing under the Mineral Leasing Act, petroleum production from these lands has rarely exceeded 5 per cent of the total production of the United States. Federal land and mining law has never, therefore, been a critical factor in the major problems of conservation and marketing, discussed earlier, con- fronting the petroleum industry in the past. Northcutt Ely comments: "Most of the important discoveries of hard minerals have been made on land belonging to the Federal Government. . . not so as to oil and gas. By a queer combination of historical and geographical accidents, the major discoveries of petroleum and natural gas have been on lands that were never federally owned [in Texas} or on lands that had passed from federal to private ownership, without a reservation of minerals, prior to discovery".40 But the paradox has come full circle, for while lands covered by the Mineral Leasing Act produce only a minimal amount of petroleum today, the oil shale deposits of the Green River Formation in Colorado, Wyothing and Utah, lie almost ~ under federal lands and are explicitly subject to Section 21 of the original Mineral Leasing Act.42 Thus the federal government in its ca- pacity as "landowner" will determine the future fate of oil `shale. 1930-1966. On April 15, 1930, President Hoover issued Executive Order 5327, which withdrew designated lands containing deposits of oil shale from further leasing under the Mineral Leasing Act and "temporarily" reserved these lands for the purpose of "investigation, examination, and classification."43 Whatever purpose President Hoover may have had in mind when issuing the order in 1930 is not now clear. But the fact remain's that this "temporary° withdrawal order remains still in effect today, having prohibited for over 35 years the leasing of federal lands containing over 80 per cent of the known oil shale reserves in this country. 20 Rzv. STAT. § 2319 (1875'), 30 USC § 2~ (1964). ~~29 Stat. 526 (1i897),, 30 U.S.C. § 101 (1964). ~3G Stat. 847 (19,10~, 43' U.S.C. § 141 (1964). 8941 Stat. 437 (1920), `30 U.S.C. § 181 (19641. ~ Etr, MINERAL `TUILES AND TENURE, ECONoMIcs OF TilE MINERAl, INDUSTRIEs 108 (1959). 41 See note 8 supra. ~ 41 Stat. 445 (1920), 30 U.S.C. § 241 (1964). 4843 C.F.R. 405 (1930). PAGENO="0212" 208 FEDERAL OIL SHALE PROGRAM 2. Recent development in petroleum leasing poUcy While leasing of federal oil shale lands has been foreclosed by Executive Order 5327, recent developments in petroleum-leasing policies in other areas are worthy of note. Some may suggest possible examples to be followed for oil-shale leasing in the future. Multiple use act.-In 1954 Public Law 585, The Multiple Use Act,44 provided for multiple mineral development of public lands. The Act resolved the head-on clash which had arisen between uranium and petroleum interests by allowing each to prospect and secure rights for their respective minerals on the same lands. Representative Aspinall (P-Cole.) said that the bill in committee "was one of the finest examples of what can be done when people with different approaches to a very complex problem can sit down and present a united front to the Congress of the United States." ~ Alaskan waters-In the Act of July 3, i958,~° Congress authorized leasing of oil and gas lands beneath non-tidal navigable waters in Alaska. The Secretary of Interior was directed to lease the lands pursuant to the provisions of the Mineral Leasing Act of 1920, which apply to leasing on nonsubmerged federal lands in Alaska. 9~uAbnaerged Lands Act and enter continental shelf lands Act.- In 1953 Con- gress settled a long-standing dispute between the states and the federal govern- ment over the ownership of offshore oil deposits. The Submerged Land Act of May 22, 1953,~' deeded ownership to the states of lands up to three miles from the shore.~ Beyond that state limits lands were designated as "outer continental shelf," subject to federal jurisdiction and control under the Outer Continental Shelf Lands Act.49 That Act removed these lands from the provisions of the Mineral Leasing Act of 1920, and Section 6 of the new Act established procedures for leasing of compact areas, not exceeding 5,760 acres each, by competitive bidding on the basis of a cash bonus with a royalty fixed at not less than 121/2 per cent. U. The Government in the Eo~ercise of the national defense and foreign com- merce powers Oil Import controls and foreign trade agreements With the new discoveries of the exceedingly rich oil reserves in South America, principally in Venezuela, and in the Middle East, major American oil companies were the first to offer the capital and technological know-how necessary for their development. Development has usually been accompanied through concessions granted by the foreign countries to the private companies.. Under these concessions approximtttely 50 per cent of the oil revenues are turned over to the foreign governments, and the developing companies must find their profits in what remains. Production in these oil-rich areas has been ex-~ panded greatly in the post-World War II period and much of the foreign oil has found its way into American markets.5° Congress has delegated to the Executive Branch the task of administering an oil import control program. At the present time the State Department, the Office of Emergency Planning, the Department of Interior, the Defense Department and, to an increasingly important degree, the Justice Department are all in- strumental in arriving at a "consensus" concerning oil import policy within the Executive Branch.5' In 1949 domestic producers began appealing to the State Department for a restriction of imports. The State Department in rejecting these appeals adhered ~~68 Stat. 708 (1954), 30 U.S.C. § 521 (1964). ~ Hearings on HIS. 8892 and Hi?. 8896 before the ~9ubcommittee on Mines and Mining of the House Committee on Interior and InsuLar Affairs, 83rd Cong., 2d Sess. (1954). ~° 72 Stat. 322 (1958), 48 U.S.C. 456 (1964). Section omItted when Alaska became a state. ~ 67 Stat. 29 (1953), 48 U.S.C. § 1301 (1964). 48 In a recent ruling the Supreme Court granted a Justice Department request to release $203 million of funds which had been Impounded as a result of the dispute between the Federal Government and Louisiana over offshore oil rights. The U.S. will receive about $170 million and Louisiana $35 million of money collected from royalties, leases and bonuses In the disputed area. The Wall Street Journal, Dec. 14, 1965, p. 26. ~° 67 Stat. 462 (1953), 43 U.S.C.. § 1331 (1964). 50PETROLEUM INDUSTRY RESEARCH FOUNDATION, UNITED STATES OIL IMPORTS A CASE STUDY IN INTERNATIONAL TRADE (1958). ~1 As a Texas Senator, President Johnson was ass outspoken exponent of Import limita- tions by quotas, but since taking office, he has said be was leaving revisions of oil Import policy to Secretary of Interior Udall. Wall Street Journal, Dec. 13, 1965, p. 7. PAGENO="0213" FEDERAL OIL SHALE PROGRAM 209 `to the general policy against import quotas announced in the General Agreement on Tariffs and Trade (GATT).n The Korean War temporarily alleviated the pressures of import competition. Then in July, 1954 President Eisenhower established the Cabinet Committee on Energy Supplies and Resources Policy. This Committee concluded that our national security could best be protected if imports were kept in balance with the domestic production of crude oil in the proportionate ratios which existed in 1954. The Committee recommended a program of "voluntary restrictions of imports" to be practiced by the industry itself. During the next few years and throughout the Suez crisis n the voluntary pro- gram worked with less and less effectiveness, until 1959, when President Eisen- hower created by proclamation the Mandatory Oil Import Control Program.54 Under this program, which remains in effect today, imports of crude oil, unfin- ished oils and finished products (except residual fuel oil to be used as fuel) enter- ing Districts [-IV (including all of the United States east of the Rockies) are not to exceed 9 per cent of the total demand in those districts. In District V (which includes the West Coast) imports are limited to an amount which, together with domestic production and supply, will approximate total demand in the district. Puerto Rico was given a quota whereby imports were not to exceed those of calendar year 1957. The Oil Import Administration, Department -of Interior, is charged with the responsibility of maintaining the proper ratio of imports to demand. In 1964,~~ the ratio stood at 9.6 per cent, an increase of .6 per cent over 1959. The O.I.A. also supervises the allocation of import quotas to individual oil and petrochemical refiners. At the present time the State Department is attempting to follow generally an open-door policy with respect to foreign trade. That Department, operating under the mandates of the Trade Expansion Act of 1962 (TEA) ,~` is committed to the belief "that it is in our national interest to maximize foreign trade." n Never- `theless, the requirements of national security are recognized as one justifiable exception to this otherwise open-door policy. Section 232 of the Trade Expansion Act sets out the rules governing the use of this exception and represents the legal basis for the present oil import control program. Under that section the Director of the Office of Emergency Planning is authorized to investigate and promptly `advise the President of any importations threatening the national security. The President is then directed by the section to `take such steps as are necessary to remove the threat. Under subsection (c)58 ~ Signed at the Geneva Conference of 1947 between the U.S. and 22 other nations. ~ During the Iranian and Suez crises major American companies producing in the Middle East were asked by the U.S. government to meet together for the pur,pose of ascertaining how best to overcome the effects of the crisis on supply and demand. They were guaranteed immunity from any antitrust litigation. Their voluntary agreements remain on file and will be put into effect upon the consent of the U.S. Attorney General in the event of any such future international petroleum supply crises. See Conservation of Oi~ and Gas, A Lega' History, ABA SEcT. M & NRL (~Su1llvan ed. 1958) `4 Pres. Proc. 3279, 24 Fed. keg. 1781 (1959), as amended by Pres. Proc. No, 3290, 24 Fed. keg. 3527 (1959) which exempted' from import restrictions crude oil imported by overland means from Canada or Mexico. "Monthly Petroleum Statement, Mineral Industry Surveys, Dept. of Interior, March 8, 1965, Table 22. "Act of Oct. 11, 1962, 76 Stat. 872 (1962) (codified in scattered sections of 19' U.S.C.). "Letter from Douglas MacArthur II, Assistant Secretary for Congressional Relations, Dept. of State, to Gordon Allott, U.S. Senate, Aug. 9, 1965. "Trade Expansion Act of 1962, supra note 56, § 232. `(c) For the purposes of this section, the Director and the President shall, in the light of the requirements of national security and without excluding other relevant factors, give consideration to domestic production needed for projected national defense requirements, existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense, the requirements of growth of such industries and such supplies and services including the investment, exploration, and development necessary to assure such growth, and the importation of goods in terms of their quantities, availabilities, character, and use as those affect such industries and the capacity of the United States to meet national security requirements. In the administration of this section, the Director and the President shall further recognize the close relation of the economic welfare of the nation to our national security, and shall take into considera- tion the impact of foreign competition on the economic welfare of ihdividual domestic industries; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the diiplacement of any domestic products by excessive imports shall be considered, without excluding other factors, in determining whether such weakening of our internal economy may impair the nation's securitr." PAGENO="0214" 210 FEDERAL OIL SHALE PROGRAM of Section 232 the Director and President are told in broad language to "recognize the close relation of the economic welfare of the Nation to our national security." In addition, the subsection admonishes recognition of the effect of imports on "the requirements of growth of such industries [critical to defense] and such supplies and services including the investment, exploration, and developmnet necessary to assure such growth . . . As recently as August, 1965 the Department of State ~ maintained that any further restriction of oil imports would not be necessary for national security and would not be in the national interest. In support of its position it notes, for instance, that Venezuela draws nearly 60 percent of its government income di~ rectjy from its petroleum industry, and that petroleum constitutes about 90 per- cent of all Venezuelan exports. Therefore, "increasing prosperity for the Vene- zuelan petroleum industry is essential if the country is to remain an effective democracy and a keystone in our relations with Latin America." 60 There has been a marked increase in oil imports allowed within the last year. Imports quotas on residual fuel oil were raised at eastern ports for 1966 by Secre- tary Udall, despite strong objections from coal and domestic oil producers and a number of eastern railroads and utility conipanies.61 Secretary Udall has indi- cated further that he favors the complete elimination of any import restrictions on residual fuel oiL'2 In order to accomplish unlimited imports Secretary TJdall must, and apparently will, appeal to the Office of Emergency Planning for a ruling that such a move would not endanger national security. As will be seen in Part Two, United States programs regulating foreign oil imports and our national defense requirements must be taken into account in arriving at any policy for the development of oil shale. PART 2-GovERNMENT'S ROLE IN THE DEVELOPMENT OF OIL SHALE Today there is no federal policy providing for the development of oil shale. Undersecretary of the Interior John A. Carver, Jr., in testifying before the Senate Interior Committee in May, 1965 said, "This reserve is so big and so valuable that . . . when one hears words like Teapot Dome . . . it tends to freeze any kind of action, either congressional or administrative."63 And yet the formulation of an appropriate national policy is essential for the future development of oil shale. In an effort to discover why no such policy has ever been formed, this paper will first give an outline of the current sItuation. Next to be discussed will be the many problems which Congress must consider if, and when, it decides to establish comprehensive leasing procedures for the future commercial development of federal oil shale lands. The problem of contested claims for unpatented lands lies outside the scope of this paper.64 As was indicated earlier,65 the amount of land Involved in these mining claim disputes is minimal compared to the oil shale lands and deposits which await the formulation of a federal leasing policy. Furthermore, the formulation of such a policy should not be precluded by the presence of these contested claims. Any policy covering the lease of federal lands would still leave resolution 66 of remaining conflicts over contested lands to appropriate proceedings between the respective elaimants.'~ ~` MacArthur Letter, supra note 57. 60 Letter from Douglas MacArthur II, Assistant Secretary for Congressional Relations, Dept. of State, to Gordon Allott, U.S. Senate, June 22, 1965. 61 Wall Street Journal, Dec. 23, 196i5, p. 2. 82 Ibid. 63 Senate Hearings on Oil Shale, supra. note 3, at 61. °~ See note 5 supra. °~ See note 3 supra. 66 Senator AlIott (R. Cob.) has Introduced legislation in the past two Congresses ad- dressed to the problem. S. 1000, 89th Cong., 1st Seas. (1965). This bill is intended to amend the "savings" clause, Section 37, of the Mineral Leasing Act by reasserting the present validity of claims to oil shale lan~s which were valid but unpatented at the date of passage of the Mineral Leasing Act. ~I~be bill, if passed, would effectively revoke all administrative and legal actions taken by the $ecretary of Interior in declaring these unpatented claims invalid. The bill has died in the Senate Interior Commit- tee both times and that committee has apparently received no Department Report concerning it from the Secretary. of Interior. See also, Cowa. EEc. 1962 (daily ed. Feb. 4, 1965). 61 Ely, supra note it, at 303. PAGENO="0215" FEDERAL OIL SHALE PROGRAM 211 A. The Present S'ituation 1. Resea~rch There is abundant material covering the economic,68 technologic69 and geologic70 (principally in Colorado) aspects of oil shale. "The Bureau of Mines has been conducting oil shale reSearch for the past half-century. A portion of this research took place at the Anvil Points demon- stration and experimental plant near Rifle, Colorado. Work i~ presently underway there under a lease agreement between the U.S. Government and the Colorado School of Mines Research Foundation operating in conjunction with Socony- Mobil, Humble, Shell, Sinclair, Texaco, Marathon, Continental, Standard of Ohio, Pan American, and The Oil Shale Corporation. The Union Oil Company of California and the Denver Research Institute continue to experiment with retorting methods. And finally the experimental activities of the Bureau of Mines Petroleum Research Center in Laramie, Wyoming, have recently been expanded.71 As will be seen immediately below, private enterprise now has enough infor- mation with which to begin commercial production of Shale oil. So it cannot be claimed that a lack of scientific data prevents the formulation of an oil shale policy. Technological advances will always be forthcoming, and the state of the art can always be improved, but there is enough evidence available now to make any of the determinations necessary for the formulation `of a leasing policy.72 Those who now cry for "more research" must only be trying to stall. 2. Private industry It is axiomatic that the economic feasibility of any capitalist venture will be best evaluated by those whose capital is at stake. The Oil Shale Corporation (familiarly known as TO5CO) was founded in 1955. "Its principal purpose was then the development of a commercially feasible, above-grounçj retorting system for the economical recovery of oil and other products from the oil shales of the Western United States." n At the present time TOSCO is engaged in such a joint venture with Standard Oil of Ohio and Cleveland-Cliffs Iron Ore Co., operating together under the name of Colony Development Co. In November, 1964, TOSCO had already ex- pended or committeed $15 million, and it plans to spend in addition approximately $30 million ~ its participation in the project. As part of their project the joint-venturers have built a plant costing approxi- mately $100 million in northern Colorado. This plant will pt'ocess commercial quantities of oil from shale being mined from non-federal lands. TOSCO expects to achieve production from this plant in 1967 with initial capacity set at 50,000 barrels of crude oil per day.76 It estimates further that costs per barrel at that rate will be between $1.00 and $1.30, depending upon the inclusion of hydrogena- tion.7° By TOSCO's estimates, these costs make shale oil comj~etitive with com- parable crude oils presently being laid down in West Coast markets.77 °8HANNA, OiL SHALR, (Reprinted by Denver Research Institute, 1964). The Oil Shale Corporation, Oil Shale Development on Federal L~tnds, Supplemental Written Statement to Oil Shale Advisory Board, Nov. 30, 1964 [hereinafter referred to as "TOSCO"]. 69 Prien, Current ~Status of ~ Oil $lsale Technology, (Reprinted I~y Denver Research Institute, 1964). Schramm & Lankford, Oil ~S'hale, DEP'T. INTERIOR, reprint from Bui~ MINES BuLL. 630 (1965). Thorne, Stanfield, Dinneen & Murphy, Oil ~8hale Technology: A Revielv, DEP'T. INTERIOR, Bua. MINES IC 8216 (1964). 76D1OP'T. OF INTERIOR, A BIBLIOGRAPHY or BUREAU OF MINES PUBLICATION ON OIL SHALE AND SHALE OIL (1964). ~ t~enate Hearings on Oil shale, supra note 3, at 4, 8-9. 72 NEPSCHERT, THE FUTURE SUPPLY OF OIL AND GAS (1958). In addition, see the extensive tables and statistics on trends in energy consumption and U.S. and world resources of energy in fossil and nuclear fuels collected by the Department of Interior. DEP'T. INTERIOR SYNOPSIS, op. cit. supra note 3. at 2-20. ~ TOSCO, op. cit. supra, note 76, at 1. 74Ibid. 751d. at 14. 761d. at 7. ~7 The Department of Interior gave the following cost figures: "One estimate recently made is that high-gravity shale oil from a 25,000 barrell-per- day plant could be delivered to Los Angeles for $2 a barrel, a~d if production were quin- tupled, the cost would drop to $1.76. Oil of comparable quality is now sel'ing in Los Angeles for $2.85 a barrel, but comparisons have to be made with prices assumed if controls [Pre- sumably tax depletion allowances and oil import quota "input allowances" (ef. TOSCO, op. oft. supra note 68, at 15, 16 and Appendix F).]1 were relaxed [which has not occurred to date. J On the other hand, the Oil Shale Advisory Board reported to the Secretary of Interior In February, 1965, its opinion that "it appears that at best oil shale would be only mar- ginally competitive with the petroleum industry today." INTERur REPORT me OIL SHALE ADvIsORY BOARD TO THE SECRETARY OF' THE INTERIOR (Feb., 1965) (transmitted by letter of Chairman Joseph L. Fisher, Feb. 15, 1965). PAGENO="0216" 212 FEDERAL OIL SHALE PROGRAM Such a commercial ccanmitment leaves little room for argument. It is made more important by the fact that the Colony Development venture plans to pro- clime commercial quantities of shale oil from relatively poor shale deposits lying wholly within privately owned or patented lands. Thus it is crystal clear that representatives of private enterprise believe that oil can, and will, be competi- tively produced from oil shale, Industry demonstrates itself ready to proceed without further delay. 3. The Courts In Aki~bama v. Tewcrs 78 the Supreme Court dismissed suits challenging the rights of states to take lands ~in;der the Submerged Lands Act of 1953 u on the ground that Congress had unlimited plenary power under the Constitution to dispose of the public domain in any way it saw fit. Thus the courts may be dis- missed as presenting any obstacle to the establlthment of a federal leasing policy. 4. The states In 1957 the Assembly of the Interstate Oil Compact Commission, representing thirty oil-producing states, unanimously adopted a resolution calling for the opening of federal oil shale lands.8° Further, the states of Colorado, Wyoming and Utah, through their state executives and their congressional delegations, have consistently sought devel- opment of their oil shale resciurcets. Colorado has been particularly active in seeking early development, and in 19~4 Governor Love stated: "We look to oil shale as another great industry in our State which can and will be developed in such a manner as to be compatible with the preservation of our scenic splendor and wildlife."8' Thus it seems that no state seeks to obstruct the development of oil shale. 5. The Federoi eccecutive It was seen earlier that authority to administer regulations covering the leasing of federal oil shale lands has been delegated to the Secretary of Interior. Thus, while the Secretary could instittite and administer a program for the leasing of federal lands, no secretary has ever attempted to do so.82 Secretary of Interior Udall has been the most elusive of all public figures on the subject of oil shale and has only said he wishes to prevent another oil scandal in this country.~ Mr. James H. Smith, calls such references to old scandals "pure demagoguery" and says, "If the government is unable `today to arrange contracts between itself and private enterprise dealing with public property without the risk of repeating Teapot Dome, then we; do not have a competent government." ~ In 1963, apparently in partial response to such criticisms, Secretary Udall published an order cancelling the existing leasing regulations and calling for public comment as to what should go into new ones'?~ Later, the Secretary created a "blue-ribbon panel" called the Oil Shale Advisory Board and appointed Josei~h L. Fisher, chairman, Orb EL Childs, Benjamin V. Cohen, John Kenneth Galbraith, H. Byron Mock and Mile Perkins. At the invitation of the Secretary of Interior and the Oil Shale Advisory Board, Governor Love of Colorado recommended competitive leasing of oil shale lands under the old provisions of the Mineral Leasing Act.8° It was recom- mended that such leasing be clone in three phases with a 5 per cent royalty at the outset. Very similar recommendations were made to the Oil Shale Advisory Board by The Oil Shale Corporation in 1964.~ The Oil Shale Advisory Board ~ 347 U.S. 272 (1954). ~ 67 Stat. 29 (1953), 43 U.S.C. § 1301 (1964). 80llesolution No. 8, Meeting of June 12, 1957, Yellowstone National Park. 51 Statement of Governor John A. Love to the National Oil Shale Advisory Board. Dec. 1, 1964. ~ President John F. Kennedy viewed administration of the public domains thus: My predecessors have been acutely aware of the dilemmas' facing the Secretaries of Agriculture and Interior a~ principal administrators of the original public domain. When- ever they have been faced with a reasonable alternative of continued public ownership and management, or disposition, they have generally elected the former. 88HANNA, op. cit. supra note 68, at 10. ~ The Denver Post, supra note 11. 8528 Fed. Reg. 11796 (1963), revokIng 43 C.F.R. pt. 197 (1963) (011 Shale Leases). 85Letter from John A. Love, Governor of Colorado, to Stewart L. Udall, Secretary of Interior, March 27, 1964. ~ TOSCO, op. cit. supra note 68, at 17. PAGENO="0217" FEDERAL OIL SHALE PROGRAM 213 issued an "interim" report88 to the Secretary in February, 1065, but unfortu- nately on consensus was reached on major leasing policy questions and the report has been likened to "six dissents saying nothing." No further report from the Advisory Board has yet appeared on the horizon, and Secretary Udall now seeems little disposed to take any affirmative action. Undersecretary of Interior John Carver, Jr., has been perhaps most candid and pointed of all when he recently said: "The Secretary has not yet determined what recommendation should be made to Congress, if any, for the resolution of any policy questions prior to the lifting of the withdrawal order . "Legally, as I have already said, I think he has the power to lift the order, promulgate regulations, and begin to issue leases . "But I also think that no Secretary, beginning with Hubert Work, right down to the present one, can take any more than tiny and tenative steps which have the effect of relinquishing title to this resource without running great risks of misinterpretation . . . . It is, in my personal and unofficial view, a question requiring congressional resolution." ~ 6. Congress Thus it is that we are led by a process of elimination to the one body of the federal government which can, and should, come to grips with the oil shale policy problem. Senator Bennett of Utah addresses himself to the problem with a statement entitled "Do ~ A response to Senator Bennett is that it is now up to Congress "to do the doing" and to reasst~me here a portion of the initiative which some feel it has lost by default to the Bxecutive Branch of our Government. In May, 1965 the first "informational" hearings on oil shale were held by the Senate Interior Committee.81 Senator Jackson, Chairman of the Committee, opened the hearing with these words: "All too often in dealing with problems affecting our natth~al resources, both economic and aesthetic, this committee is faced with a condition, not a theory Conditions often demand ad hoc solutions to immediate limited problems. But . . . such is not the ease here today. We hope to have basic facts and issues presented, and then to be able to deliberate upon broad overall policy questions involved in the wisest and best course of action to take With respect to this great natural resource . . . ." In addition to committee action and congressional hearings, it may be that the oil shale policy problem will be taken up by the recently established Public Land Law Review Comniission.°3 The Commission, which is to make its report by June 30, 1968, is not explicitly directed to study oil shale, but such a study is clearly not outside the Commission's present authority.~ B. Formnlation of a Leasing Policy: Immediate Considerations If Congress is to formulate a leasing policy for the early development of oil shale, it must deal with a number of specific, immediate considerations. Many of them have already been outlined by members of the Oil Shale Advisory Board.'~ None present insurmountable problems. Straightforward alternatives are avail- able from which Congress can make its necessary policy choices with relative ease. 1. Conservation Two distinct conservation problems present themselves when considering oil shale development. First, there is concern for other regional resources in the oil shale area. Second is the concern for maxhaum utilization of the oil shale re- source itself. As was noted earlier, the State of Colorado is actively aware of the need to protect all of its many resources. Thus Governor Love has said: 88 INTERIM Rzron~ or THE OIL SHALE Anvisoar BoARD, Op. eit.~ supra note 77. 892enate Hearings on OR Bho2e~ supra, note 3, at 88-39. 90~8enate Hearings on OR $haie, supra note 3, at 6. 91,8enate Hearings on Oil $hale, supra note 8. ~Id. at2. ~ 78 Stat. 982 (1964), 43 U.S.C. § 1391 (1965). ~S. Rzp. No. 1444, 88th Cong., 2d Sess. 13 (1964). ~ Mock, supra note 12, at 59-60. See there "Issues to be considered by the Oil Shale Advisory Board." PAGENO="0218" 214 FEDERAL OIL SHALE PROGRAM "Conservation problems, including the disposal of spent shale, and the pre- vention of possible atmospheric and water pollution are under active study by agencies in our State, as are community problems relating to schools, highways, etc. We see no insoluble problems.~ The Oil Shale Corporation has also recognized the need for industry to assume its share of the conservation burden and to insure adequate protection of air, water, surface lands, wildlife, etc.°7 In addition, TOSCO recommended to the Secretary of Interior far-thinking measures to insure proper utilization of the oil shale itself. Among these was a plan for allowing lower royalties as an incentive for the extraction of marginal and low-grade sha1es.~e One problem to be considered is the disposal of the vast amounts of waste shale left over from the retorting process. This problem sounds less imposing when one hears from the Bureau of Mines that vegetation will begin to grow on the spent shale deposits after about three years of weathering.89 Nevertheless, there are some who wish to prevent completely any commercial activity on the public domain. These so-called "protectionists" thus oppose the development of oil shale at any time or for any reason. But if the real problems of conservation are met and solved in a forthright manner and if Congress finds that oil shale development is in the national interest, then any continued objec- tions by these protectionists will not be justified. 2. Water It has long been recognized that water will be crucial in the commercial devel- opment of oil shale, and recently major oil companies have been buying up water rights adjacent to oil shale.10° The future of the waters of Colorado, Wyoming and Utah is inextricably tied up with the Ocolorado River Storage Project ~ and with current legislation and interstate agreements affecting the allocation of waters in the Upper and Lower Colorado River Basins. It is clearly to the advantage of Colorado, Wyo- ming and Utah to appropriate their unused shares in Upper Oolorado River waters as soon as possible.102 Utilization in the oil shale industry is ideally suited for such appropriation.102 3. Acreage limitations. The question of acreage limitations is one of the most vexing problems con- fronted when one tries to prescribe fair leasing terms. Irregularity in grade and in thickness of the shale beds makes the amount of oil recoverable from under different surface acreage vary greatly. For instance, a 5,120-acre plot (the maxi- mum allowed under the existing Mineral Leasing Act) in the richest parts of the shale formation wonid contain 18 billion barrels, an amount equal to nearly 60 percent of the Nation's proved reserves of petroleum.104 Leasing `by competitive bid is one answer to this problem. The Government could specify a fixed dollar amount to be paid by the bidders `and each bidder would then calculate the least number of acres he would be willing to receive for that cost. The winner would be the company bidding the lowest number of acres. 1!lnder- secretary of Interior Carver said, "I see no reason why a competitive situation could not be cranked adequately into a leasing system!"°5 Congress will not be without helpful precedents in its search for fair leasing procedures. In Part One of this paper other recent developments in domestic ~° Statement of Governor John A. Love to the National Oil Shale Advisory Board, Dec. 1, 1964. TOSCO, op. cit. supra note 68, at 17. 981(1 at 20. ~ HANNA, op. cit. supra note 68, at 6. 100 See the recent excellent article: Delaney, Water for Oil ~S~hale Development, 43 Dzwvzu L.J. 75 (1966). 10170 Stat 105 (1956), 43 U.S.C. § 620 (1964). 102 LegislatIon for the establishment of a national wild rivers system was proposed in the last session of Congress. S. 1446, 89th Cong., 1st Sess. (l965~. One of the crucial impli- cations of the bill is that future water appropriations may be foreclosed on any river to be included within the wild river system. The Green River of Wyoming is scheduled for pos- sible inclusion in the system. This fact could foreseeabiy do great damage to the future development of oil shale in Wyoming. 103 In November, 1965, the Interior Department agreed to sell to Colony Development Co. up to 7,200 acre-feet of water annually at a sliding charge from $8.50 to $10.40 ap acre foot. The contract will run for a term of 40 years. Wyoming State TrIbune, Dec. 2, 1965, p.3. 104 ~S'enate Hearings on Oil shale, supra note 3, at 35. 1891d. at 62. PAGENO="0219" FEDERAL OIL SHALE PROGRAM 215 petroleum leasing policy were traced. Of particular note is the Outer Continental Shelf Lands Act,'°0 which created procedures outside of the Mineral Leasing Act for competitive leasing of off-shore oil reserves. Further, it may now behoove the United States to look to Canada as a source for leasing precedents. Historically, Canada has given greater emphasis to hard- rock mining laws in deriving leasing principles for the development of its petro- leum resources.197 The United States might well follow that example with respect to its oil shale. In 1063, for instance, production was begun in the Atbabascan Tar Sands. Dominion control of Canadian oil lands had been relinquished to the provinces in 1930; 108 therefore, it is Alberta that has been responsible for the formulation of `a policy for the development of its tar sands. [n 1963 Alberta issued the first production permit for 31,500 barrels per c~ay to Great Canadian Oil and Sand Ltd.109 The Alberta government in a statement of policy dated October 19, 1962, affirms that production from the oil sands will be authorized at levels so as not to interfere unduly with present or foreseeable markets for con- ventionally produced Alberta crude oil. 4. Revenues Along with acreage limitations, the question of revenues is basic to any leasing policy. Further, it is a question which only Congress is authorized to settle. Separate aspects of this basic problem include royalties, taxation and depletion allowances, and the distribution of government income. Under the existing Mineral Leasing Act, 37.5 per cent of the revenue from oil shale leases would be allocated to the state in which the lands are located, 52.5 percent would go to the Reclamation Fund, and 10 percent would go gen- eral receipts.11° In formulating an oil shale policy, Congress may change this distribution as it sees fit. Congress also must make an equitable determination with respect to royalties. TOSOO and Governor Love of Colorado have recommended a royalty of 5 percent.1'~' As was seen, the Outer Continental Shelf Lands Act prescribes a minimum royalty of 121/2 percent for offshore leases.'° The issue of depletion allowances on oil revenues is one of foremost importance to the developing oil shale industry. At `the present time the Tnternal Revenue Service has ~ that an allowance of 15 percent, as specified `by statute,11' will be given on shales after mining. Representative Aspinall (D-Colo.) is seek- ing to clarify this ruling by specifying that the allowance is `to come after re- torting instead of after mining."5 In addition, crude `oil producers receive a de- pletion allowance of 27% per cent, and the developers of oil shale seek to have themselves included in this greater allowance category?~° ~. New entries It was pointed out earlier'1' that leaders in the oil shale industry must be careful lest they run afoul of anti-trust laws prohibiting upfair competition practices which would work to `the disadvantage of new entrants into the field. Apart from anti-trust considerations, a concern has also been expressed that the high capital requirements for entry into the oil shale industry will prevent small companies from successfully competing with large, established companies.. This is a problem which may exist during the development of any new industry, ~but it is clear that further delay by the government in opening the industry to development will only serve to entrench more firmly those major companies with private landholdings and experimental sites. The Atomic Energy Acts of 1946 118 and 1954 ~ dealt with this same problem by placing in the public domain certain patent rights acquired by companies who had `~~` Cf. note 49 supra. `~ Thompson, Basic Contrasts Between Petrolesnt~ Land Policies of Canada and the United ~8tates, 36 U. Cono. L. Rzv. 187 (1964). 108 Id at 211. New York Times, April 8, 1963, p. 153. 110 TuE Oit SHALE ADVISORY BOARD, O~. cit. supra note 77, at 9. 111 See p. 84 supra. ~-`~ See p. 75 supra. "~ Unpublished. 114 Tsr. Rzv. CODE os 1954, § 613. `~ HR. 10896, 88th Cong., 2d Sess. (1964). ~` TOSCO, op. cit. supra note 68, at 30-32. 117 p. 67 supra. 11860 Stat 755 (1946), 42 U)S.C. 2062 (1964). 11960 Stat. 919 (1954), as amended, 42 U.S.C. §~ 2011-2281 (1964). PAGENO="0220" 216 FEDERAL OIL SHALE PROGRAM established themselves stages. The 1954 Act a unpatented technology possesse Congress might use similar proc participants in oil shale developu U. "The National Interest": Its broad considerations In the preceding section immediate and specific considerations for leasing policy formation were discussed. As was noted, choLces are available in each of these areas, and such choices can be readily tested, adopted and changed, if necessary, during the forthcoming development of an oil shale Industry. The present section will explore broader considerations having to do with the general "national interest." Such issues as are involved here are difficult to define and the policy choices within them are often hard to evaluate. The writer feels that some of these issues must underlie the otherwise unex- plained opposition which has so far prevented the development of oil shale. The future of oil shale depends in large measure upon the frank and open discussion of these issues. Once it can be shown that production of shale oil is in the best national interest, then the major obstacle to oil shale development will have been removed. 1. Defense needs and national secnrity Captain K. C. Lovell, Director of Naval Petroleum and Oil Shale Reserves, Department of Defense, says unequivocallyn2 that the immediate development of oil shale is necessary for national security. Citing figures showing projected increases in domestic demand and increased reliance on foreign oil (an estimated 30 per cent from foreign sources by 1983), he urges that development be com- menced just as soon as posible. It is clear that the new oil shale industry cannot produce instant oil." Humble Oil Company estimates a lead time of from eight to ten years before facilities could accomplish "on stream" production.1°° Thus, Captain Lovell urges that to wait for war or a national emergency would be to wait too long bc~fore attem~pting to mobilize necessary shale oil production. 2. Foreign trade and the control of imports As we noted in Part One, the State Department is committed to the expansion of foreign trade whenever such expansion would not endanger the national security. It was seen that Secretary of Interior Udall has recently indicated his desire to increase the importation of foreign oil into this country. It is obvious that such importation of foreign oil has a profound effect upon our domestic petroleum industry. It may well be that those who oppose the' development of oil shale really do so because they favor an increase in the importation of foreign oiL ~-~° Dzp'p. INTzftIoa SyNOPsIS, op. cit. supra note 3, at 41. ~ Mock, supra note 12, at 67. 122 5~eooate Hearings on 012 ilkale, supra note 3, at 64. ~°° Relstle, supra note 1. r to i res in ant. 6. f~pecnlatioiv The Department of Interior has often expressed its fear that "speculative tendancies" ~`° brood menacingly over prospective oil shale development. But it should be pointed out that the "do-nothing" attitude of that Department has probably contributed more than any other single factor to speculation in oil shale land and adjacent water rights. Bryon Mock, a member of the Oil Shale Advisory Board, "At least to me, the taint of Teapot Dome and its ay~ reserves of the Federal Government will best be laid to of the Federal oil shale lands to competitive leasing v ments written in that eliminate those who cannot or will not develop t - -. - This does not mean that all should `be opened at once but in my opinion some should be. To some the withholding of the federal oil shale reserves from develop- ment may be construed to be as great a granting of favors to those who wish to restrict competition in that field as would ~e the direct issuance of preference to such people. This dilemma is one common to public administrators. To my mind affirmative action is the only solution." `°~ PAGENO="0221" FEDERAL OIL SHALE PROGRAM 217 But the strongest answer to those favoring increased imports is that such a policy would only serve to worsen the present balance-of-payments problem. Further, recent months have witnessed a series of unsettling events in foreign oil-producing countries. The government of Indonesia has recently taken over that country's major oil-production and refining facilities, which had, until that time, been owned and operated by American companies.~4 The gOvernment of Venezula has recently levied increased taxes on American companies producing oil there.125 These companies are being rudely reminded that "the power to tax is the power to destroy." In Libya, American companies have just undergone a difficult year. The Libyan government revised its concession agreements with American com- panies and now requires a significant increase in royalty payhients.'25 All of these events show a trend which indicates the dangers to the United States inherent in its heavy reliance upon foreign oil. 3. Control of the "energy m4~v" Congress must consider future energy requirements and the "energy mix" which would best meet these requirements. But in planning for the future, Con- gress must scrupulously avoid preferential treatment that constitutes a manipu- lation of energy sources in disregard of the demands of the open market. To do otherwise would be to engage in "end-use" controL Oil shale should be allowed to take its place, along with other fuel `sources, in providing for the Nation's future need's. Atomic energy and coal127 are two other potentially `competitive sources of fueL In the past the government has given a great boo'st, through subsidies, to the atomic energy industry. Some with a ve'sted interest in `securing a favored position for nuclear ~ may be opposed to the development of oil shale. But the oil shale industry should not now be pro- hibited from competing on equal terms with this and other energy `sources if a genuine need for the production of shale oil can be shown, 4. Control of the market As wa's noted in Part One, Rostow, de Chaze'au, Kahn, and Others are strongly critical of the petroleum industry and its apparent enjoyment of freedom fr'om government regulation. They denounce in particular production control by state prorationing `statutes and what appears to be industry control over market prices. Domestic exploration activity and domestic crude oil reserves are at their lowest points since 1949.125 Now the critics of the petroleum industry m'ay find it convenient to oppose the development of oil shale because they fear `that such development would allow for `a revival of the domestic petroleum industry. But such fears are irrational and unfair. In the first place, the oil shale industry should obviously Je allowed to develop on its own merits. In the second place, there are indications th'at it will be the mining and chemical industries, and not petroleum, which will be most instrumental in the development of oil shaie. Private enterprise as a whole will contribute new technology, new capital and new market demands for the production of shale oiL Nothing prevents the govern- ment from creating new answers and establishing a workable relationship' with private enterprise in this new endeavOr. In regard to all these consideration's involving the national interest, Byron Mock most recently said: "By the time `the report [of the Oil Shale Advisory Board] came out it seemed to me that we had resolved two questions. First, there was no public interest that justified holding up an oil shale industry. As a consequence thereof there w'as w~ public interest that necessitated indefinite delay of lifting the withdrawal Oh federal oil `shale lands, The second conclusion was that there were definable public benefits to ie achieved from opening the oil `shale reserves." ~`° 124 Wall Street Journal, Dec. 31, 1065, p. 6. 125 Wall Street Journal, Jan. 6, 1966, p. 14. ~ Wall Street Journal, Jan. 6, 1966, p. 14, Jan. 5, 1966, p. 9, Dec. 29, 1965, p. 18. See also, "Mideast Oil: Big Supply, Little Savvy," Wall Street Journal, Dec. 6, 1965, p. 10 127 Some oil companies are presently purchasing coal properties and developing techniques for making gasoline from coal. See Wall Street Journal, Oct. 20, 1965, p. 1. `~ For instance, the TVA (which has evolved into a goserument power monopoly) has announced that it may build a nuclear power unit next year "if the price is right." See Wall Street Journal, Dec. 20, 1965~, p. 4. 129 Wall Street Journal, Jan. 6, 1966. 130 Mock, supra note 12, p. 65. PAGENO="0222" 218 FEDERAL OIL SHALE P}~OGRAM CONCLUSION The requis~tes for the development of oil shale are clearly pre~eflt~ Oap1tal~ technology aiid manpower await the "go-ahead." Only the formulation o1~ a na~ tional oil sthale policy is lacking, and iiow Congress should provide 1~or that lank. Today the federal government holds a "monopoly" in leasaNe oil shale lands. ~ ~ The legislation of leasing procedures for these lands will, in effect, be a description of the terms by which this monopoly will be exercised The fi ~ in its capacity as oil shale landlord has the present potentiality Government in the ugliest sense of the word But this need not be the case Congress with the cooperation ot of the Interior and interested representatives of private ente authority and the ability to balance carefully the best interest to the present oil shale controversy If the I ng is will be forthcoming which is " tional" r the extent that it best provid~ for the ~ The basic question which confronts those who ~s ,~J attempt to formulate a ndtional policy for the development of oil shale should not be whether the federal government should reserve oil shale lands for public, as opposed to private, development. The capital expenditure for research and commercial production by the Colony Development Co. is evidence that private enterprise is already committed to the economic feasibility of private development. Further, ifl the light of the traditional technological superiority of private industry in this coun- try, future shale oil production will best be done by our private mining, chemical and petroleum industries. To argue otherwise would be to make a basic departure from the principles of capitalism. The first basic policy question which must be answered is, "When and under what terms for the distribution of revenues (i.e., income taxes, rents, royalties, bonuses, etc.) will private industry be allowed to compete for the leasing of publicly owned oil shale lands?" Boiled down, the question becomes one of timing and of dollars. Ultimately, it is the market place which will best determine the adequacy of the answers given to this first policy question. For if the revenue terms are set so as to prohibit the competition of shale oils in the market place, or if leasing is not allowed at a time when there is a market demand for the product, then the value of this resource will have been lost and the national interest defeated. The second basic policy question concerns government control. Assuming that the first policy questic~n has been answered by the implementation of competitive leasing procedures and fair revenue distirbution terms, then the remaining policy question asks, "Under what forms and degrees of government control will the production of oil shale be allowed?" Here the national interest is not so susceptible to testing in the market place. For here government controls will affect such areas as conservation, national security, social well-being and world peace-areas where an economic evaluation is often impossible. The success or failure of the national policy touching these areas will only ultimatel~~ be tested by historical judgment. The days of the free-miner tradition have passed. In 1935,181 the last of the public domain in the United States was closed to entry prior to classification under the homestead laws. Thus was marked the passing of the American Frontier, an institution which bad been celebrated by Frederick Jackson Turner and his disciples as the "world's greatest instrument of democracy." To others, its passing was a sign that "America had come of age." ~ The formulation and carrying forward of a national oil shale policy could well evoke like reactions in the days ahead. To some, it may spell the end of "freedom" within the oil industry. Others may recognize it as a new industry's "coming of age." But no matter what the reaction to that policy may be, its determination is best left to the legislative forum. While it can be said that a political and economic climate favorable to the development of oil shale has been lacking in the past, it is hoped that such a climate is now improving. ~o one of the numerous administrative problems confronting the development of 181 By Executive Orders of Franklin Roosevelt, Nov. 243, 1934, ~ind Feb. 5, 19115, based upon autbortty for such withdrawal found In the Act of June 25, 1910, established a Na- tional Conservation Program (.30 Stat. 901 (1910),). Coupled with the aboive mentioned Executive Orders was the Taylor Grazing Act of 1934 (48 Stat. 1269 as amended (1934), 43 U.S.C. §315 (19e4)). 13SR0BBINs, OiJii LANDBD HsrnITAGz 423 (1962). PAGENO="0223" FEDERAL OIL SHALE PROGRAM 219 oil shale are insoluble. There are none for which early answers cannot be given. Apparently all that has been lacking is sufficient impetus within the federal government to move from dead center in seeking these answers. It is only suggested now that the Congress get to the task at hand~ Otherwise the twenty- first century and the discovery of new energy sources will be upon us apd this vast national asset will have been left wasting in the ground where it is of benefit to no man. [Ed. note. The basic research for Mr. Dominick's article was due in 1966. The author informs that since that time some significant developments have occurred with respect to a national oil shale policy. These developments are [1. Further increases in oil importation allowances were made by Secretary of the Interior Udall in September, 1966. [2. Foreign governments in recent months have increased their demands upon American producing companies for higher royalty, tax and concession payments on foreign produced oil. In November, 1966, Mid-East governments threatened complete confiscation of United States oil facilities. [3. There has been increased interest in the feasibility of in-situ retorting of shale Oil by underground nuclear explosion. This interest is being carried forward by the Bureau of Mines (see Oil and Gas Journal, August 15, 1966, p. 44), the Division of Peaceful Nuclear Explosives of the Atomic Energy Commission and a joint venture of some fifteen private companies. In 1966, the 89th Congress appropriated about $1.5 million for a similar AEC project in New Mexico called "Gasbuggy." There is now expectation for nuclear testing in oil shale lands in the near future. [4. Two potentially valuable minerals were recently discovered in conjunction with oil shale deposits. Nacholite, a sodium carbonate, and Dawsonite, a potential ore of aluminum, are now being investigated for marketability by private companies. This effort has been somewhat hampered by the fact that the Depart- ment of Interior has so far refused to specify whether Dawsonite is leasable nuder the Mineral Leasing Act of 1920, or locatable under the Mining Act of 1872, and if locatable, whether by placer or by lode claim. Private industry awaits that determination. In the meantime, these discoveries point up the necessity for a comprehensive national oil shale policy which would put to most advan- tageous use all of the related minerals of the western oil shale lands.] Senator HANSEN. If I may, Mr. Secretary, I would like to refer to testimony on page 5 of your prepared statement. You say: Aided by these comments we have in process the further intensive study of oil shale policy which is so necessary in arriving at the decisions on a proper program. Our target date for completion of this study is mid-January 1968. Could I ask what this study entails? Mr. IJDALL. Well, it entails really, Senator, at this point, a review of all the comments that had been received. It entails any and all second thoughts that my own people have had about what we did in May. It entails this hearing. It entails the other comments and suggestions we received. In other words, we are going to need some time to evaluate and digest all this mass of material. Senator HANSEN. It would be your purpose, as you proceed with this study, to firm up your feeling on regulations and perhaps to consider their publication in the Federal Register, say, w1thm a year or two; is that correct? Mr. IJdal]. Our objective is to move as rapidly as we can, and I have indicated this January date because we have this fixed in our own mind. I want you to know that. Senator HANSEN. Thank you. Mr. Secretary, a number of compnnies have pending before you at the present time applications for sodium preference right leases. It is my understanding that these companies have made detailed technical PAGENO="0224" 220 FEDERAL OIL SHALE PROGRAM presentations to you describing their intentions with respect to develop- ing these so called saline sections that contain among other things nahcohte and dawsonite minerals Point 1 of your five point program published in January of this ~ ear stated, "Pending sodium preference light lease application will be promptly considered on their merits." I would like to ask what is being done by your Department to reach a decision under present law on these lease applications. Mr. TJDALL. Senator, I can only give you a general answer on this because I have not had a conference on this leasing in weeks. I am aware of these leases. We were serious in what we said earlier, that we were not putting these on the shelf. We did intend to process them and work on them, and perhaps I can give you a more detailed report on it soon. Senator HANSON. Thank you, Mr. Secretary. I would observe that some of these applications, I think, have been filed with your depart- for more than 15 months, and I share your hope that there can be an early resolution of them. I think that the industry would certainly welcome the clearing up of the problem that is before you. I would like to ask, Mr. Secretary, does the Anvil Points contract include the right to `do research on other minerals such as the sodium minerals and, if so, what information has the government received from the Anvil Points group concerning the sodium deposits and their potential? Mr. TJDALL. Senator, I would like to give you a reply, a quick reply, in writing on this. My impression is, and I was personally involved in the Anvil Points, that the main thrust of the research there is in the direction of perfecting a process for the extraction of shale `oil. `There may be some of the research in terms of the mineral values, but I think the main thrust is process, improving the process. Senator HANSON. On the oil shale? Mr. TJDALL. That is right. (The information requested is as follows.) Nothing in the Anvil Points lease agreement precludes research on minerals at the Anvil Points `facility. However, there is so little dawnsonite and nahcolite in the oil shale there that such research probably would not, and to the beet of our knowledge, has not been conducted. No data on minerals research at Anvil Points have been made available to us by the Foundation or the six companies. Senator HANSEN. I note that the thrust of these hearings is to get the reaction from the private sector, and that, of course, tied into the whole thing, I think, is the thought that has already been expressed: businesses and corporations, whether they be oil companies or what- ever, are in a competitive situation today. They no longer feel con- strained-or at least this is my observation-to stick with one par- ticular activity, and I would just like to observe that whether we do get a viable oil industry going or not, I think, will depend upon the frame- work of the regulations that are propounded-it resolves itself, in my judgment, down to a simple matter of economics, if a company can invest I millions of dollars in some other ventures, it may very well do that instead of trying to continue with the offering of oil to the con- suming public in this country, and in that context I think that all of us ought to keep in mind that the industry, the banks and everyone PAGENO="0225" FEDERAL OIL SHALE PROGRAM 221 else, will be studying closely, very simply and purely, what the oppor- tunities for profits are in this operation as compared with other things. I have no further questions. I would like to compliment you, Mr. Secretary, for your leadership and it does not go unnoticed that this is the first time in more than 30 years that someone has had the courage and has recognized the vital interest that this Government has in look- ing toward its own resources. I think, as you have already emphasized, that the conflict in the Middle East shook all of us out of our lethargy and gave added impetus to see what could be done in order to shore up our own energy supplies right here in. this country. I compliment you for a very excellent statement. The C[IAIRMAN. Thank you, Senator Hansen. Mr. Secretary, on behalf of the committee,, we wish to, ~xpress our appreciation for your appearance here this morning. We will un- doubtedly be calling on you again before we get through with these hearing. Thank you very much. (The statement of the Rocky Mountaih Oil & Gas Association follows:) ROCKY MOUNTAIN OIL AND GAS AssoctArrox, September 14, 1967. SIrNATE COMMITTEE ON INTKLiIOii AND INBULA~ AFFAIRS, Washington, D.C. GENTLEMEN: The Rocky Mountain Oil and Gas Association Would like to submit for inclusion in the recOrd of `the hearing commencing September 14, 1967, Its views with respect to oil shale, and in particuiar the proposed leasing regula- tions published by Sécretaj~y Udall on May 10, 1967. Our Association has a membership of 470 indlividual `and company oil and gas operators of all sizes, ranging from small independents to major oil companies. Its region of industry representation includes the states of `Colorado, Wyoming and Utah, in which Oil shale is found, as well as the ~tate,s of Montana, South Dakota, Nebraska and Idaho. We are pleased that the Secretary of the Interior has i~ec~mmènded that private industry develop the oil shale resources located on Federal lands. We believe that this decision is in the best interests of the nation, because through competitive free enterprise our natural resources have `been and are now being effectively developed at low cost `to the consumer. A key reason that the American consumer enjoys `the cheapest energy in `the world's history is that the United States Government policies have In general been quite stable substantially assisting long range planning The uncertainties and restrictions contained in the proposed regulations as discussed below may well defeat the development of this great oil shale resource' by private enterprise. 1 We respectfully submit that we can see no persuasive reason why research effort should be restricted to a few applicants selected by the Secretary Govern ment owned aci~eage should be made available to all qualified applicants for the sole purpose of research The acreage could be made available for research on a basis similar to a license or prospecting permit 2. When a lease is granted under the regulations `as presently proposed, the Lessee does not know if the lease will be extended br commercial production. Furthermore if the lease is to be subsequently extended to commercial production he does not know the extent of acreage or reserves to be covered `by the extended term lease. In effect, the `Department of Interior proposes to require any oil shale lessee to expend very large sums of money on research without any assur- ance that he will have a production lease and no knowledge of what the produc- tion lease would cover if granted. This app~oach is entirely without precedent and will constitute a definite deterrent to research and production. Companies will be i~eluctant to make the sizea'ble investment in research without knowing in advance both the term of the lease and the acreage covex ed by the lease 3. The royalty provisions of the proposed regulations would operate to dis- courage investment and `thereby deter comi~etition and development. The grad- uated royalty `schedule based on net income, in add'tion to income taxes, would make it most difficult, if not impossible, to compete with other sources of energy. PAGENO="0226" 222 FEDERAL OIL SHALE PROGRAM It would be difficult to administer and it would also operate to peiiaiizh the more efficient operators. We recommend that the lease provide for a fixed royalty rate not to exceed 5% of the gross value of the product from the retort or at. the in situ weliheaci. 4. Th~ proposed regulations will operate to curtail research by not allowing a research lessee to retain the benefits of his research discoveries and thereby have an opportunity to recover his large investment. Because of this many companies or individuals may wait for someone elsb to do the resear':h and' use the results without cost in a commercial operation. If our oil shale resources are to be effectively developed `to meet the needs of the nation, w~ `believe that the proposed rules should be broadened and made more flexible so as not to discourage d~ve1opment of this resource by restricting the entry of a broad variety of companies and other groups into the research and development of oil shale. Our recommendations are as follows: 1. We beliove that the regulations as written are unworkable as discussed above because of the complexities introduced by tying the research and `com- mercial phases together. Nevertheless, if they are modified to eliminate som~ of the problems discussed above, there may be some who would d~ire to proceed undbr such a program. 2. We recommend that tracts of public lands be made available solely for' research purposes, limited in size, with the provision that once the research program was completed, the premises would revert to the United States. These tracts should be made available without cost, or at a nominal charge, to any qualified party desiring to do research, with `such party retaining all patents' and research information as is customary in any private research project. The benefit to' be derived `by the United States would be encouragement of research and development of this vital natural resource. 3. There may be some companies who now would like to have the opportunity to acquire commercial oil shale leases on specific tracts and proceeds with construction o'f facilities for production of shale oil without the necessity of doing further research as required under the rules as proposed. Leases could' be put up for sale on a competitive bidding basis similar to that now used for off-shore leases. l~or the protection of the government and the lessee, the leases should be on a prescribed lease form. Reasonable annual rentals or other pay- ments could be established which would be sufficiently high `to provide an in- centive for early development by the lessee. Such rentals would not be payable once commercial production was established. The lease term should be for five years and so long thereafter as diligent operations for the production of shale oil are `being conducted. The rentals `and relatively short primary term of the lease would discourage speculation `and foster continuous progress toward production. Some of the suggestions which we have `made in these comments may require the enactment of legislation to clarify and supply needed arithority for the Secretary. To the extent required, legislation to accomplish this purpose should be drafted and introduced in Congress. Uncertainty in the laws and regulations is one of the greatest `deterrents to progress ~n the development of oil shale., Necessary guidelines must he set in order to attract the necessary capital. While oil shale has enormous potential, it cannot be utilized without solution of a number of economic and technical problems which now impede its develop- merit. Great effort by both industry and government will be required to resolve these problems. `Oil shale also faces severe competition from other energy sources. We believe, therefore, that if this great resource is to ever be made i~vail- able to the nation, the emphasis of the government's policy must be on encourage- merit rather than restricted development `by private enterprise. We hope that the views of our Associatiou will be of assistance to the Com- mittee on Interior `arid Insular Affairs in its consideration of this complex subject. Respectfully submitted, COLLIS P. `CUANDLES, Ja., President, Rocky Mouatain Oil a~ncl G~s Assooiation. The CHAIRMAN. The committee will stand in recess until 2 o'clock this afternoon. The first witness this afternoon will be Dr. Charles F. Jones, President of Humble Oil and Refining Company. PAGENO="0227" FEDERAL O~L SHAU~ PROGRAM 223 We hope to hear from the other four additional wit~nesses before we conclude this afternoon. (Whereupon, at 12 o'clock noon, the committee recessed, to reconvene at 2 o'clock p.m. the same day.) AFTERNOON SESSION (Present: Senators Jackson (presiding), Moss, Allott, and Hansen.) The CHAIRMAN. The committee will come to order. The ~onimittee will resume its sitting. Our first witness this after- noon is Mr. Charles F. Jones, president of the Humble Oil & Refining Co. Mr. Jones, we are delighted to welcome you to the committee. I assume you have a prepared statement? Mr. JONES. I do. The CHAIRMAN. You may proceed. STATEMENT OP CHARLES P. NONES, PRESIDENT, HUMBLE OIL & :REPINING CO.; ACCOMPANIED BY GEORGE H. SHIPLEY, READ, COAL AND SHALE OIL DEPARTMENT, AND RAYMOND D. SLOAN, JYEANAGER, RESOURCE ACQUISITION, COAL AND SHALE OIL DEPARTMENT Mr. JONES. Thank you. Mr. Chairman, I am Charles F. Jones, president of Humble Oil & Refining Co. which has its headquarters in Houston, Tex. I am accompanied today by my two associates from the company, Mr. George Shipley, on my left, who is the head of our coal and shale oil department; and Mr. Raymond D. Sloan, on my right, who is the man- ager of resource acquisition in that department. Now, Humble is the principal domestic subsidiary of Standard Oil Company of New Jersey, and our company is engaged primarily in the petroleum business with operations in exploration, production, transportation, refining, and marketing. I consider it a privilege to appear before this distinquished com- mittee. I would like to thank the chairman and other committee mem- bers on behalf of my company for giving us this opportunity to state our views regarding the need for commercial development of shale oil and the type of federal regulations that would be conducive to development of an oil shale industr~y on public lands. Humble has been engaged in oil shale research for many years and we are vitally interested in these subjects. Before offering specific comments on the regulations proposed by the Department of the Interior, I would like to discuss the Nation's future need for energy and the role which shale oil might play in meeting this need. A recent study prepared by the Bureau of Mines indicates that in 1980 the United States will consume almost 65 percent more energy than we consumed in 1965. While part of this growth will be supplied by natural gas, hydropower and nuclear energy, the Bureau of Mines anticipates that U.S. demand for petroleum will grow from a current level of about 12 million barrels daily to about 18 million in 1980. Basically there are three ways in which the sizable growth in demand for petroleum can be met. ~`irst, by increasing indigenous pro- PAGENO="0228" 224 FEDERAL OIL SHALE PROGRAM cluction of crude oil, second, by increasing imports, and third, by developing production of synthetic oil from shale or coal If we as sume that in 1980 the portion of US petroleum requirements supplied by domestic crude oil and natural gas liquids remains unchanged, and O\ en allowing for a decline in the reserve production ratio to 9 years' supply, gross additions to U S reserves of liquid hydrocarbons would have to be about 72 billion barrels during the next 14 years. This is a major task as evidenced by the fact that during the last 14 years U.S. reserve additions totalled only 48 billion barrels. It is difficult and perhaps impossible to predict future discoveries of crude oil with a high degree of accuracy. We have, however, made such forecasts and the results of this work suggest that during the 1970's U.S. reserve additions will not keep pace with requirements. We feel it is important that this possibility be fully recognized and that serious consideration be given now to various ways of supplementing pro- duction of conventional crude oil during that period. The CHAIRMAN. Mr. Jones, I just wanted to observe, I thought you were ad-libbing for a while, but page 1 of your statement is not available to us. The statements we have start at page 2. Mr. JoNEs. We gave you a special copy to cut part of it out, I take it. (Laughter.) The CHAIRMAN. We considered your position. Mr. JONES. My sincere apologies. I believe, Mr. Chairman, you will find that what I say was consistent with what now appears on page 1. The CHAIRMAN. It was very factual. It sounded very fine, but I was wondering for a moment whether you were just ad-libbing or whether there were some real meaning in why you started at page 2. I do not know whether you are superstitious, but that is all right. Mr. Joi~s. I wish I could claim there was a real intent in this, but it is purely accidental on our part. [L~ughter.] If we are together now on page 2- The CHAIRMAN. All right. Mr. JoNEs. The growth of non-conventional sources of liquid energy depends, in part, on the emerge~ice of a gap betweeu U.S. demand and supply of conventional domestic production plus imports Such a de velopment would create an opportunity for shale oil; however if shale is to fill part Of a possible gap, appropriate steps should be taken now to permit the development of this industry. We cannot overlook the fact that it will take a number of years to perfect the technology essential for a competitive shale oil industry. Oil shale is in abundant supply in the United States and could be- come a major source of energy. But we must put to rest the mistaken fears that it will obtain a disproportionate share of the energy market, Certainly, shale oil cannot inundate the market overnight. It will likely have a modest beginning and will only supplement and not replace domestic crude oil. Also, contrary to many public statements, the production of oil from shale will be costly. Although the per barrel investment in a commercial mining and retorting operation is lower than that for liquid petroleum, operating costs are considerably higher than for op- erating average oil producing properties. Our current engineering studies show that, with appropriate royalty and tax provisions, shale PAGENO="0229" FEDERAL OIL SHALE PROGRAM 225 oil produced in commercial operations involving mining, crushing, and processing would have about the Same book rate of return as the na- tional average for mining and manufacturing gefierally. Under the proposed Department of the Interior regulations, however, returns would be substantially lower. Thus, there is nothing in our studies that suggest windfall profits. Some facts regarding shale oil reserves in this country are worthy reviewing. The most important oil shale deposits in the United States occur in the Green River formation of Colorado, Utah, and Wyoming. The frequently-quoted estimate of 2 trillion barrels of shale oil grossly overstates the economic reserves available. This figure includes all shale oil in the deposits and, as with crude oil, a large; portion of the deposits will not be recoverable. There is a vast difference between a resource in place and the amount that is recoverable with existing technology and the usual economic limitations. With known tech- nology, recoverable shale oil amounts to a relatively small fraction of the total oil in place. There are wide differences of opinion on how much oil can be re- covered from these oil shale deposits. The differences can be attributed in large part to the parameters used in making the estimates. For ex- ample, Dr. Russell G. Wayland, of the U.S. Geological Survey, recently testified before the Senate Antitrust and Monopoly Subcom- mittee that from the high-grade shale, which is a 30-35-gallon-per-ton shale, "about 80 billion barrels of shale oil is considered recoverable by demonstrated mining and retorting methods." Humble estimates that from a 25-gallon-per-ton and richer shale, about 160 billion bar- rels of oil could be recovered. Neither Dr. Wayland nor Humble says these amounts can be recovered economically. On either basis the oil potential is tremendous, even if it is only a small fraction of the trillions that have been quoted by various sources. Regardless o~ the amount of recoverable reserves that is eventually established, about 80 percent or more is on the public domain. Some 11 million acres in Utah, Wyoming, and Colorado are underlain by the Green River formation and are classified as oil shale lands. Most deposits on these lands, however, do not contain sufficient recoverable shale oil to be commercially attractive. The richest shales are believed to be in the Piceance Basin of Colorado where some 770,000 acres con- tain 25-gallon-per-ton and richer shale in thicknesses of 15 feet or more. This acreage represents only a small part of the total acreage classified as oil shale lands, but it contains the bulk of the recoverable reserves with foreseeable economic potential. The Federal Goverumei~t controls about 580.000 acres of potentially productive lands in the Piceance Basin of Colorado. This acreage should be made available for leasing under the Mineral Leasing Act. Title to most of ibis laud, however, is cioude(] with numerous types of unpatented mining claims and sodium exploration permits. Clear tit]e is essential to the development of these federally owned shale lands. The validity of each. title is subject. to adjudication under existmg laws and is properly the CO1T1CCill of our courts. The T)epart- ment of the Interior should take immediate steps to expedite the final resolution of this all-important legal problem. I would now like to comment on oil shale. technology. Oil shale is a maristone containing a solid hydrocarbon known as kerogen. Raw PAGENO="0230" 226 FEDERAL OIL SHALE PROGRAM shale oil is derived from kerogen by heating the rock to a high tem- perature, a process known as retorting. The two major approaches for extracting oil from shale are (a) retorting of mined shale and (b) rn situ, or underground, retorting. First as to retorting of mined shale, the potentially commercial oil shale contains inert rock in the range of 80 to 85 percent by weight. This means a relatively large volume of rock must he mined, crushed, passed through a retort vessel, and heated to temperatures sufficient to break down the kerogen and produce raw shale oil. With regard to in situ retorting, we have here a process whereby the oil shale would be heated underground to break down the kerogen. The hydrocarbon vapors generated in the form of raw shale oil at the surface. This process would eliminate the mining, crushing, and disposal of large volumes of rock. To date, however, the possible ap- plication of the in situ process is based mostly on theory, and little has been proved regarding practicability. There has been much talk in government and industry about utilizing a nuclear blast to create a large underground zone of broken rock. This rock would then be heated in place, and the shale oil recovered at the surface. The nuclear concept is dramatic, but we believe the possibility for development of a practical system is remote. Even though the in situ process provides desirable objectives and will continue to attract research attention, we believe that the mining and retorting approach offers the best promise for the development of a shale oil industry in this country. After retorting, the complex process of upgrading still remains. The raw shale oil is not a suitable refinery feed-stock; it must be converted to a synthetic crude oil by adding hydrogen and by remov- ing the undersirable elements of nitrogen, sulfur, and oxygen. The upgrading operation requires elaborate high-pressure and high- temperature equipment. Now, turning to the role of private industry in this effort, many companies have made significant commitments of capital and technical resources for the development of an oil shale industry. One example is the retorting research operations financed and conducted by several companies, including my own, at the Bureau of Mines experimental facilities in Anvil Points in Colorado. Humble has been engaged in land acquisition and research program for several years. We have spent more than $15 million on oil shale since 1963. 1 would hazard a guess that in recent years private industry has spent over $100 million in similar efforts. But even more important, private industry has demonstrated that it is capable of and willing to finance and conduct the necessary research and development to bring shale oil into commercial production. The Senate Antitrust and Monopoly Subcommittee recently con- cerned itself with questions of monopoly and antitrust in connection with development of the federally owned oil shale deposits. Although this concern is understandable, the Mineral Leasing Act of 1920 con- tains provisions which insure against the possibility of a monopoly. The act provides that no lease can exceed 5,120 acres and that no person, association, or corporation can hold more than one lease. Con- sidering the large amount of public land involved, it is difficult to PAGENO="0231" FEDERAL OIL SHALE PROGRAM 227 imagine any possibility of monopoly in developing oil shale deposits, particularly when the Federal Government itself controls the issuance of leases. I would like to add that the petroleum industry operates daily in an extremely competitive environment. There are hundreds of market- ing and refining companies, and in the producing phase the number of firms reaches into the thousands. These companies are competing constantly; for example, in the recent Outer Continental Shelf lease sale, about 55 companies participated in the bidding for the acreage the Government offered for sale. The nature. of the competition in the industry has been recognized by Government officials. Before the Senate hearings on the competitive development of oil shale, Dr. Willard Mueller of the Federal Trade Commission stated: "that the competitive performance of the petroleum industry over the last 50 years has been quite effective." Humble believes that in the best interest of the Nation the mineral energy resources contained within the public domain should continue to be developed by private enterprise under a minimum of Federal controls, as in the case of oil and gas, and without further Government expenditures on research. Multiple efforts by numerous private firms have developed the oil industry as we knOw it today. History well demonstrates that such efforts have been particularly successful in providing the necessary research and development for new processes and new products. This approach should be continued for oil shale. Thus, the Government should encourage private research and develop- ment leading to the commercialization of shale oil on the public oil shale lands. Development of shale oil production should be determined by the normal economic forces governing competition among fuels, which have been so effective in the past. The free play of competitive pres- sures among domestic energy sources continues to be the best means of supplying the needs of the public at reasonable prices. I would like to turn now to our position on the proposed regulations and with the general concepts I have just recited as a guide. I will discuss the specific regulations proposed by the Department of the Interior. May 10 of this year, the Department of the Interior published its proposed regulations to govern oil shale leasing and land exchanges. Comments on the proposed regulations were invited. My company submitted its comments on the proposed regulations to the Department of the Interior on June 8, 1967. We agree with Secretary Udall's testimony before this committee on February 21, 1967, that the Mineral Leasing Act of 1920 provides adequate authority to lease deposits on the public dom'un for the com mercial development of shale oil This act contemplates the develop ment of mineral resources on the public domain by private enterprise The public interest has been well served under this competitive system We believe that extension of this concept to the oil shale hnds will result in their orderly, efficient, and timely development. The substance and general tenor of our comments on the proposed regulations follow: The Secretary is to be commended for taking the initial step which could result in the development of federally owned oil shale reserves. PAGENO="0232" 228 FEDERAL OIL SHALE PROGRAM However, Humble believes that the proposed regulations do not pro- vide adequate incentive for private enterprise to commit its technical and capital resources to the development of the reserves on the public domain. We are particularly concerned that the regulations will con- tain concepts that would inhibit the normal development of this natural resource. Humble believes that leasing of the Federal shale lands should be done on a competitive bid basis, preferably by public auction, using a bonus system with a fixed, moderate royalty. The bonus system will result in the maximum leasing income to the Federal Treasury, the fostering of normal economic forces, the prevention of premature investment by industry, and the avoidance of speculation in leasing Competitive pressures will automatically require that the lease bonuses reflect the profitability of shale oil operations; therefore, the royalty should be held to a relatively low, fixed amount so that shale oil will not be at a cost disadvantage compared with competing energy sources. Bidding for leases should be open to all potential participants on a competitive basis, with no discrimination in respect to firms in any particular industry, size category, or other classification. Unitization of lands into efficient conservation or production units should be per- mitted. It is not necessary that an extensive amount of acreage be leased currently. Rather, land should be made available for lease on a periodic basis, similar to the procedure used in the leasing o.f Federal oil lands on the Outer Continental Shelf. The holding of leases for speculation should be discouraged by re- quiring the expending of appropriate sums for research and develop- ment during each year of the lease until commercial production has been achieved. Failure of the lessee to carry out diligently the agreed- upon program should be grounds, subject to court review, for for- feit~re and cancellation of the lease. I would now like to focus attention on the following specific sec- tions of the proposed regulations, and for each I will give our views and then our position. Section 3170.0-1 covers the purpose. One objective contained in this section is to "encourage participation by companies not favorably situation with respect to access to reserve of the minerals present in oil shale." This objective could discourage those companies which in the past have taken the initiative to develop research and technology for the exploitation of oil shale and related minerals. Our position here is that the regulation should encourage and foster research and development efforts by any and all qualified individuals and companies. Section 3170.1 Designation of available lands. This section precludes industry from having any voice regarding lands that will be designated for leasing. The location of the lands is of utmost importance from the standpoint of terrain, accessibility, availability of water and other utilities and of constructing and oper- ating plants for research and commercial operations. This section also limits leasing of oil shale lands to not more than 30,000 acres, presumably divided among three States, and would un- duly restrict broad industry participation in oil shale development. PAGENO="0233" FEDERAL OIL SHALE PROGRAM 229 Our position on this section is that the regulations should not limit the Secretary as to the total amounts of land which he may designate. We think this section should provide that the Secretary designate from time to time reasonable amounts of land, with clear title, based on nominations made by qualified individuals and companies. Sections 3171.2-3171.3 cover the form and contents of application and considerations to be used in evaluating applicants. These sections relate to the qualifications of an individual or com- pany for acquisition of an oil shale lease by application based on an acceptable research program and on the need by the applicant for both the acreage and the products therefrom. Those portions of these sections requiring disclosure of ownership in private lands, divulgence of confidential reserve information, and detailed projections of re- search and commercial operations go far beyond what is necessary to determine capability and qualifications. Information of this type is not relevant to the technical and financial capability of the applicant. A number of provisions pertain to an applicant's need for reserves and require the applicant to set forth his nonfederally owned oil shale reserves and conventional crude oil reserves. The principle that an applicant's need for reserves should be a factor in determining whether an applicant would be granted a lease is a real cause for con- cern. The merits of the proposed plan of research and development and the applicant's ability to carry out that plan should be the deter- mining factors in granting or failing to grant a lease. Our position then is that oil shale leases on public domain land should be awarded by competitive bidding, preferably at public auc- tion, with the requirement that the successful bidder perform a reason- able amount of research and development leading to commercial pro- duction. Open competitive bidding would withstand public scrutiny and would stimulate commercial development of public oil shale lands consistent with the needs of the Nation. Section 3172.2 covers the term of lease. Under this section the research term of the lease is too indefinite and extension of the commercial production term depends on the discre- tion of the Secretary of the Interior. Our position here is that the lease terms proposed are not appropri- ate for a competitive bidding system, and thus should be modified as follows: First, with research to research term. All leases and notices of lease sales should provide for a specific research terms. Such research term may be extended by the Secretary, piovided the total term, as ex tended, does not exceed 10 years. The leases should be subject to termi~ nation, after appropriate court review, in the event research and de velopment obligations are not satisfied. Second, with regard to commercial production term. The commer- cial term of the lease should commence upon satisfactory completion of the work to be performed during the research term and should continue for so long thereafter as mineral products are produced from oil shale in paying quantities from deposits on the land Section `1172 3 covers acreage designation and limitations This section is too restrictive on the rights of the lessee because the Secretary would have the right to select the research site, to determine PAGENO="0234" 230 FEDERAL OIL SHALE PROGRAM the quantity of mineral deposits needed for commercial production, and to limit the area of commercial operations. Our position here is that for greater efficiency the lessee should have the right to select the research site and should be permitted to hold and develop the total acreage as described in the lease. The regulations should provide for the inclusion of additional acre- age in the lease, as long as the total acreage covered by the lease does not exceed the legal limitation. Section 3172.5 has to do with royalties. The royalty schedule proposed in this section would stifle the devel- opment of a shale oil and associated minerals industry on public lands. Such a schedule based on a graduated percentage of net income, to- gether with the current Federal income tax structure, would operate to discourage the investment of private capital. In addition, such a schedule would increasingly penalize an operator in proportion to increased operating efficiency. Thus, it would have the overall effect of placing the commercial production of shale oil and associated min- erals at a serious competitive disadvantage with alternate sources of energy having a fixed royalty schedule. Our position on this matter is that the royalty rate on hydrocarbon production should be a fixed amount not to exceed 5 percent on the' gross value of the first products recovered from retorting. Historically this percentage has been used satisfactorily for other minerals. In case of in situ operation, the royalty rate should be the same based on the' first products recovered from the wellhead. In either case, royalty should be payable only on products sold or used off the premises. On all other minerals, the royalty should be 5 percent of the proceeds received by lessee for such minerals on the premises in their raw form after retorting and concentration hut prior to any treating or benefi- cation. Should lessee sell such minerals in another form on the prem- ises or remove such minerals from the premises, the royalty should be 5 percent of the market value o'f such minerals on the premises in their raw form prior to any concentrating, treating, or benefication. The royalty payments should be waived during the first 5 years of the research term as permitted by the Mineral Leasing Act. Section 3172.9 covers other provisions. Portions of this section require that disclosures of technical infor- mation be made public and that patents be assigned to the Federal Government. This `section would destroy one of the most powerful competitive forces th'at could be brought into the oil shale develop- ment. The effect of these provisions would be to compel the lessee to' disclose all of his technical "know-how" `and operating `data as well as' background information and data accumulated from prior research efforts. Our position here is that the lessee should be required to make available to the Federal Government only such data and information as is necessary to assure .that the lessee is conducting a prudent and efficient operation. All technical information so acquired should be held `confidential by the government during the research term. Patents obtained by a lessee should continue to be held and licensed by him in the same manner as other patents. Under this patent system, the United States has achieved outstanding industrial `and scientific progress. PAGENO="0235" FEDERAL OIL SHALE PROGRAM 231 Section 3172.10 covers antitrust consultation. This section provides that prior to issuance of a lease, the Attorney General will ad~vise if issuance conflicts with the Federal antitrust laws. Our position here is that this regulation is unnecessary because of the acreage limitations contained in the Mineral Leasing Act. The proposed regulations also set out a position with regard to exchange of oil shale lands. These provide that under the Taylor Graz- ing Act, we point out that under the Taylor Grazing Act, oil lands to be exchanged would have similar geological characteristics. We think these limitations are too restrictive because of technical difficulties in evaluating such characteristics. Such a requirement would cause num- erous administrative problems. Our position here is that the criterion should be that the offered oil shale land be of a value approximately equal to or exceeding the value of the selected public land. Now, in conclusion, I would like to summarize our views concerning the development of oil shale on the public domain. 1. Liquid fuels from nonconventional sources could be needed in the next 10 to 15 years, and oil shale could become a supplemental source of energy. 2. Because of leadtirne requirements, steps should be taken now to encourage the necessary research and development of oil shale on the public domain. 3. Oil shale on the public domain can best be developed by private enterprise. 4. Clear title to the public domain oil shale lands is essential to such development. 5. Regulations proposed by the Department of the Interior do not provide the necessary encouragement and incentives for private enter- prise to commit its technical and capital resources to the important task of developing this industry on the public domain. 6. Revised regulations should be issued by the Department of the Interior without delay. These regulations should be conducive to the diligent advancement of research and development by private enter- prise so that shale oil can make its proper contribution as a supple ment'il energy source when the need arises Mr Chairman, this concludes my prepared remarks Thank you The CHAIRMAN Thank you, Di Jones You state that Illumble believes that, in the best interests of the Nation, the mineral energy resources contained within the public domain should continue to be developed by private enterprise under a minimum of Federal controls, as in the case of oil and gas, and without further Government expenditures on research Is it not true that if some of the smaller companies are going to have an opportunity to participate in a competitive way that the research being done by the Government could be of considerable help in giving them a better competitive position ~ I am not saying that the Govern ment should subsidize other companies, but they are not all equal in their research capability Would you cut off all Federal research in this area~ Mr JONES Mr Chairman, I believe that my position on Federal i esearch is that there are certain areas that transcend individual corn PAGENO="0236" 232 FEDERAL OIL SHALE PROGRAM pany interests. aiid that are iii the national welfare, and that are not in the private sector, that are approl)riateiy the concern of Govern- mont, This has to do with public health, for example, for the space program activities which have no immediate relation to the private sector, and a number of other areas. But in those areas where research is being conducted to satisfy a demand of the economy, and which can be and has been appropriately handled by the private sector, I feel that there should be no Federal research. The CHAIRMAN. To be specific, what areas are we talking about with reference to the pending matter? I do not think there is any great quar- rel about the fact that the Government should not necessarily parallel what private industry is doing. But the statement is "without further Government expenditures on research," and that would mean the whole area that we are talking about, would be cut off from Federal research funds. I question whether this is desirable? Mr. JONES. Well, obviously- The CHAIRMAN. In the nuclear field, for example, which was referred to this morning; Dr. Teller-years ago-wanted to move the Plowshare program into this field and npply it to oil shale. This is involved, of course~ in connection with the work that the Atomic Energy Commission has undertaken in trying to improve various aspects of the peaceful nuclear explosive applications. You would not cut off this research would you? Mr. JONES. Should this work move forward with research on the use of nuclear fission in in situ retorting obviously the AE~C would be involved in this. So, within the confines of that area AEC has to be involved; but the research work that would be attendant to follow up on it, in my opinion, would be appropriately conducted by private industry and not by the Government. The CHAIRMAN. There again you get into the question of degree. It would have to be decided where to cut it off. Mr. JONES. Yes. This does involve a matter of judgment. I am really trying to speak to the principle that I cannot support the concept of government research in competition with private re~ search to satisfy consumer needs that are appropriately a part of the private sector of the economy. The CHAIRMAN. Senator Allott? Senator AJJLOTT. Yes. On this research, Dr. Jones, I take it that you feel that any effort by Government to get involved in a broad general research program comparable to that which is carried on by numerous private com- panies, at the present time, would be an extravagance which the Gov- ernment cannot afford. Mr. JONES. I would certainly agree with that, Senator. Senator ALLorr. But also you recognize that if we get into the in situ retorting, certainly the government is going to have to be in- volved in it, at least until such time as the laws of this country are changed with respect to the use and production of atomic energy. I would like to discuss with you for a few moments the question of the royalty situation and just exactly how you feel that the royalty PAGENO="0237" ~ED~RAL OIL SI~ALE PROGRAM 233 provisions off~red by the Secretary would affect the development of a viable industry. As I understand it, you feel that the bracketed scale of royalties would tend to have a depressing effect upon the expansion of the in- dustry rather than an expansive effect upon it. Mr. JoNEs. I do indeed, Senator. I suppose there are twO things basically that worry me, perhaps three things that worry me, about the royalty approach. The first one is simply a philosophical one that penalizes the more efficient opera- tors. One of your strongest driving forces of- Senator ALLOTT. For some reason I cannot hear you. Mr. JoNES. Am I cut off ~ Senator ALLOTT. I do not know. You know, we talk about sending people to the moon, but for some reason or other we cannot get a speaking system in this committee room that can be heard around the room. The CHAIRMAN. I have always said if somebody can come up with a simple microphone that could be used effectively and reliably we ought to give him the Nobel Prize. [Laughter.] Senator ALLOTT. I agree with that. Mr. JONES. I guess, as an aid, this is one of the most comforting things we have. We can be pretty sure the machine won't quite replace us because every once in a while it gets out of whack. Back to the question you raise concerning an expansion of my views on these royalty provisions. In essence, they provide that the more efficiently you conduct your operation, the more you will pay as royalty payments. This concept of taking money away in the form of royalties as a percent of your net income is to me diametically opposed to the strong- est motivating force that we have in private industry of continuously doing our best to innovate, create, and to improve our operations, and to minimize costs. Experience has shown that as we do this competition moves the appropriate portion of the gains so made back into the private sector in the form of improved products at reduced prices. Now, secondly, if this is intended as a tool for the Government get- ting the right amount of money for these properties on public domain, as I pointed out in other parts of this testimony, I feel it is an unneces- sary tool. If the competitive system is involved in bidding, the com- panies doing the bidding will take into account the profitability, ob- viously, of the entire operation, and the bids would be developed to reflect the overall profitability. I think, if we look at the development in other areas, in the number and type of offshore bidding for the Outer Continental Shelf, we have seen how this has resulted in, over the years, intense activity by the various companies in their bids. If we take into account the profitability from these operations, this is reflected in the bid prices for the leased lands. So graduated royal- ties are, at best, an additional tool which would add nothing to the basic tool that is built into the competitive bidding system But I think the worst thing about it is that it dulls initiative, and essentally it pen- alizes the most efficient PAGENO="0238" 234 FEDERAL OIL SHALE PROGRAM Senator ALLOTT. Would it be safe to say in this area you might have two companies with comparable deposits, both with the same size leases, and the company which operated most efficiently would pay more royalty to the Government `than the other company and, in effect, place the first cowpany in an unfair economic position. Mr. JONES. Yes. By collecting more royalty from the efficient pro- ducer his competitive advantage would be cut. At the same time, this would reduce him closer to the mediocre performer. The Government will still collect a lesser amount from the poorer producer, and the poorer producer would have less incentive to improve his operations. Senator ALL0TT. You have stated that there are approximately 580,000 acres of land in this area owned by the U.S. Government, and you have emphasized in, I think, two or three places, and I think right- fully so, that one thing the people must be assured of is the opportunity of a clear title. Mr. JONES. Yes, sir. Senator ALLOTT. Otherwise somebody who had overfiled or some- thing of that sort might have their filing sustained by a court, and then the company which had gone in there might be subject to paying considerable damages. I think this is a very valuable contribution. But with the limitation of 5,120 acres, if you assume as much as 30,000 or 40,000 acres being leased by the Government under an oil shale program, you still are considering only a small part of that amount which is owned by the Federal Government. Mr. JoNEs. Yes, sir. Senator ALL0TT. With respect to this, I have been concerned with the question of getting into a position here where companies who are genuinely interested, who are willing to put up research money and develop processes-a lot of these patents are actually in the public domain now, are they not? Mr. JoNES. Some of them are; yes. Senator ALLOTT. Some of them are. I have been concerned about the situation of making it possible for these companies who have a gen- uine interest whether or not they are going to be able to acquire leases in the public domain. I have a study by Mr. Cameron, who will testify later today, I believe, or tomorrow, showing the various private hold- ings in this area, and this does not happen to be your situation, I think. What would be the situation if a company which held private land there with relatively shallow beds, that is in thickness, should attempt to start upon the development of them and. then later be faced with competition from someone who could get a lease of 5,120 acres in the deep and, for the most part, richer shale beds which lie deeper in the Piceance Basin? Wouldn't this make an unbearable economic hazard or would it? Mr. JONES. Well, as you correctly point out, we are among the have- nots in this area, and do not own any such lands. We are talking about the south part of the Piceance Basin, toward the outcropping. Senator ALLorr. Yes. Mr. JONES. So I can only theorize on this since we do not have imme- diate personal interest in this problem. But it would seem to me that you have stated it just right. A com- pany faced with making a decision of putting a substantial amount of PAGENO="0239" FEDERAL OIL SHALE PROGRAM 235 money into a plant-I believe a figure was quoted this morning of about $125 million for a 50,000-barrel-per-day plant, and I think this is in the right order-would cause a prudent company management to assess very carefully the position it might find itself in a half dozen years in the future when we have such questionmarks as persist at the present time as to the role of the Government in carrying out re- search and making information commonly available to all partici- pants or all potential participants. Senator Ai~i~orr. In these areas some of the beds are relatively shal- low-you say 50 feet of recoverable 20-25-gallon oil, whereas in the deeper parts of the basin, the beds go up in excess of 1,500 feet in thick- ness with shale which will run as high as 50 or more gallons per ton. A person or those companies with holdings in the southern part of the sector, along the outcroppings, would almost need to know for certain whether or not they could participate in the leasing and development of the deeper, thicker, and richer beds, would they not ~ Mr. JONES. Certainly I agree with that. I think, to make the prin- ciple here, Senator, what would be important to me is that I would like to have a little assurance about what the running rules of the whole game are going to be a little bit further down the road. The worst possible position that a company can find itself in is to be trying to make investments for the future knowing that there are a number of factors `that will `be extremely `important to it, and not having any notion as to what the running rules on these other factors are going to be. Now, certainly in this case we are looking at here, with the vast public lands just to the north of the lands you are describing, what is going to happen to these public lands is or should be of deep concern to the holders of private lands in the south. So, although a person might not have to know exactly whether or not he could lease some of these Government lands, he would surely want to know what was going to happen to the public lands and w'hat impact this would have on him from a competitive standpoint as the future unfolds. The important pdint is that you need to know what the running rules are to have them nailed down, so that you are sure of what environment you are going to have to operate in. Senator ALLOT. Well, you are really getting to the point I wanted to make-and I am glad you did not steal my punch line completely- which is that if a competitive leasing system were set up and the Secretary decided that a certain number of acres were to `be `set aside for competitive bidding, that anyone who is genuiiiely interested and had the need and the ability, could pretty well cleteiinine where they were in the situation I described. Mr. JONES. Yes, sir. And then the bid prices would reflect the very best ~tssessment of the relative values of the lands involved, just as they do in the Outer Continental Shelf bidding. Senator ALLOTT. And you feel that the research lease could be sur- rounded with sufficiont certainty so that if the people did not perform real research, if they did not pmsiie it with diligence, if they did not come up with viable, economic methods, that the lease could then be canceled. PAGENO="0240" 236 F1~WERAL OIL SHALE PBOGRAM Mr. JONES. Yes. Senator ALLO~T, 0~ brought to a ~onelusion so. that the interest of the public couldin all respeots be protected. Mr. JONES. Yes, sir. Senator ALLo1~'r. I think that is all I have, Mr. Chairman. The CHAIRMAN. Dr. Jones, you recommended a royalty of 5 per- cent. The leases in connection with the Outer Oo~tinental Shelf are not less than 12½ percent. They are presently set by regulation at 161/2 percent. You refer to this in your statement. What is the reason- ing by which you come to this 5 percent figure? Mr. JoNEs. Five percent, as I understand it, is a royalty that is ap- plied to many minerals. This is not oil in the form of liquid- hydrocarbons. The CHAIRMAN. No; but the end product is oil. Mr. JONES. The end product is oil. But we are talking about what you are starting with here, and, in our opinion, a lower royalty pay- ment would be conducive to developing the shale oil industry at the most rapid pace. Now, as I have indicated earlier, to the extent that technical devel- opment allowed improved profits from this operation this, if we have any confidence in all of the past performance in such areas, would be reflected in bid prices on the lands that the companies leased from the Federal Government for development. Admittedly, you can exchange the one for the other, and in the final analysis, I suppose, they are interchangeable. But as a system, I think we would be better off with a low royalty payment and look forward to the lease bids as being a common denominator so far as getting the best value for the Federal Government. The CHAIRMAN. How do you answer the contention that we are deal- ing with known reserves here so you do not have the exploration costs? You do, however, have the development costs, which are substanti~l because we are dealing with a whole new problem, both from the stand- po~ñt of research and from the standpoint of technology. On the other hand, in the offshore operations I would suspect that the exploratory work is much more expensive. You are in deep water, you are getting into deeper water, you have all sorts of problems which you do not have in a land-based operation. How does one respond to that kind of contention? Mr. JONES. Well, I do not know that I can. I see little in common between the offshore operations and the shale oil development. The only thing I see in common are the principles which I have emphasized of competitive bidding for Government lands. It is quite true that no exploration, or essentially none, would be involved in the shale oil development. You know where it is. There is a lot to be learned about its characteristics which you might call ex- ploration, but which might more properly be called development. But beyond the principles of lease acquisition, it is very difficult to compare these two areas. They are essentially different. The CHAIRMAN. I agree. But we have a higher royalty on the off- shore production, which is in a more difficult area, than we have on the continent and the costs of exploration and operation offshore are sub- stantially greater are they not? PAGENO="0241" PEDERAL OIL SHALE PROGRAM 237 Mr. JoNEs~ This is true. The CHAIRMAN. There are many new problems of engineering ~nd technology when you are prospecting in deep water. Also; offshore from Alaska you are dealingwith real problems of extreme tides, ocean currents, and so on. I just pose this question. I do not know the answer, but it would seem té me there is some relationship, although the problems are differ- ent. We are dealing with problems, and we are dealing with the require- ment of additional expenditures, and that is why I raise the question about the 5-percent figure. * Mr. JoNEs. Just as I have pointed out that the royalty payments on oil from shale would enter into the total economic picture, so today the royalty payments on offshore oil enter into the economics there. These two are reflected in any bid prices for the lands. I find myself a little bit at a loss as to how to pursue this comparison, though, because I could just as well extend it to sand and gravel or other minerals that are mined in much the same way that oil shale would be mined, and here the 5-percent royalty has been the traditional level for this kind of extraction industry. So you can make this kind of comparison with a lot of things that are more nearly like the extraction of oil shale from the ground and by the same techniques. Senator Au~orr. Mr. Chairman, could I comment on this just very briefly? I think it would be well to have the staff prepare a more inclu- sive statement than I have found here just in a moment. I think that where the recovery of minerals from the ground is, and the mining is a significant factor, that the lower royalty has been utilized as opposed to the 121,4 percent or 16 percent. I was looking here at title 30 of the United States Code, section 262, relating to sodium. I think we ought to have the staff get these other minerals. The CHAIRMAN. I think this is a very important point because it is hard to remember that varying applications apply under the Mineral Leasing Act, as it relates to the Outer Continental Shelf. We will have this prepared. (The information requested is as follows:) Minerals ~s.~bject to leasing under act of Feb. 25, 1920 (41 Stat. 437; 30 U.S.C. 181 et seq.) and under the Acquired Lands Act of Aug. 7, 1947 (131 Stat. 913; 30 U.S.C. 351-359) Royalty rate Statute citation Oil and gas (competitive) Oil and gas (noncompetitive)... Coal As fixed in lease with l23'~ percent minimum. 123/i percent As fixed inlease. Scents per ton mm- imum. Sec. 17 M.L.A. (41 Stat. 437, Stat. 910; 30 U.S.C. 181). Do. 30 U.S.C. 207. 60 Potash Sodium Not less than2percent of gross value at point of shipment. do 44 Stat. 1057; 30 U.S.C. 282. 41 Stat, 443, 45 Stat. 1019; U.S.C. 262. 30 Phosphate Sulfur do Fixed in lease. No minimum estab- lished. 41 Stat. 440; 30 U.S.C. 213, 44 Stat. 301. Oil shale, native asphalt, solid and semisolid bitumen and Fixed in lease. No minimum 30 U.S~C. 241, bituminous rock. Outer Continental ShelL.. Not less than l23-~ percent PAGENO="0242" 238 FEDERAL OIL SHALE PROGRAM Senator ALLoPr. Just for the sake of the record at this point, the statement provides for a royalty of not less than 2 percent of the quan- tity mined on sodium. So this would lead to one question, which my friend from Wyoming, if he would permit me, I would like to ask, and that is, would it be of considerable assistance in this area if we were successful in moving the present 15 percent depletion allowance from the point where it now applies, which is at the point of removing the shale or marl from the ground to the point of the first retorting. I think you referred to this, at least indirectly, in your statement. Mr. JoNEs. Yes, Sir. Senator ALLOTT. Would this be of some assistance to you? The Secretary did not comment on it this morning, and I personally feel that it is one of the important aspects of this development. Mr. JoNEs. `There are two obviously important points. One is the determination of the amount of royalty, whether it be 5 percent or whatever, and the other is the point of application; and what we have recommended is that the gross value of the first products recovered from retorting be the point of application. Senator ALLorr. So that would be the product first retorted, or in the case of in situ retorting- Mr. JONES. The first liquid received at the welihead. Senator ALLo~rr. The first liquid received at the wellhead. Thank you. Mr. JoNES. Excuse me, I am told by Mr. Sloan `that what I said was about right. On most minerals extracted from the ground by the traditional mining methods, royalties run up to 5 percent. It is gen- erally 5 percent or less, and this has been the basis of these decisions on mining. The CHAIRMAN. Dr. Jones, we want to be fair. After you have seen the record if you wish to supplement your remarks in any way, you may do so. That applies to all witnesses. We are trying not to ask pointed questions, and to avoid placing any- one in a position where he may not have an immediate answer. What we want, more than anything else, are `the facts. We are in a new area with a lot of new problems, and we cannot do our job unless we get the information. We want as much information as we can possibly assemble. I have just one other question, Dr. Jones. How do you feel about the need for a Federal recordation statute in connection with the applications for mining claims in the Green River Oil Shale formation? Mr. JONES. On this, I suspect my supplemental statement will be more intelligent than the one I can make right at `the moment. From the little that I know about it I do not think that this is needed in connection with clarification of the status of these oil lands. Adequate information, procedures, knowledge are currently available to proceed with this at the present time. The CHAIRMAN. I will appreciate having your comments because the Secretary has some real nroblcms when so many claims, as he indicated here this morning, have been filed. As you know, at present each county, and State has different record- ation provisions and different rules that apply. PAGENO="0243" FEDERAL OIL SHALE PROGRAM 239 Mr. JoNEs. I do wish to file a statement on it. I think we know where ours are, and we have all the information needed to clear them up. The CHAIRMAN. I would suspect that you know what property you have. Senator Hansen. Senator HANSEN. Thank you, Mr. Chairman. Let me compliment you on a very excellent, definitive statement, Dr. Jones. I do have some questions that I think follow along those that have been asked with reference to the royaky rate, and I note, as has already been observed, that you recommend that royalty rate of a fixed amount not to exceed 5 percent. Obviously, the public is interested in maximizing the royalties that would accrue to the Federal Government, `and I have no argument at all with that concern. I would like to observe, however, and ask you if you would not agree with me, that there are other equally valid public concerns, one being, should we not be quite concerned over the complete utiliza- tion of these oil shale resources. May I add to that by way of clarification, my belief that any fixed costs that are part of the retort operation, or whatever it may be, could well determine the extent to which the resource is completely utilized. I am familiar in my State of Wyoming with secondary recovery operations, and tertiary recovery operations, and the breaking point occurs when the cost of bringing a barrel of oil above ground and re- fining it will not repay all of the other costs that have gone into it, including interest on the investment. When that point is reached, it becomes very marginal. Now, we are leaving, and I understand this is true not only in Wyoming but, perhaps, in the many other States as well, oil under- ground that could be brought up if you want to spend enough money to bring it above ground, but if it cannot be brought above ground so as to return a profit to the oil company, it is not going to be brought above ground. Would you agree with me, this ought to be part of the consideration, public consideration, in the resolution of this royalty rate question? Mr. JONES. Yes. And if I tried to talk on it, I think I would repeat what you said, Senator. This is, I feel, appropriately a consideration that a group such as yours should take into account, because it is part of the environment in which the company operating will make its economics and determine its course of action. Senator HANSEN. I heard estimates made that we can probably pro- duce not fewer than 80 billion barrels of oil, as I recall, from our present projections of the application of our technology on this re source, and up to as many as 2 trillion barrels I do not know how much will be produced, but I suspect that the amount that will eventu ally be produced will reflect a number of factors, and included in those will be the cost of the royalty return that must go to the Government Also, there is another area of proper public interest, and that is, I feel, that the public generally will benefit from the production of a low cost fuel, so that we may think about the ultimate tax take in PAGENO="0244" 240 rrDEEAL 0Th SHALE PR0GRA~t the way of this royalty that goes to the Federal Government, on the one hand; and we ought hot, in considering th~t; o~eriook `tJi~ obvious advantage, on the other, wherein~ we provide or we p~oduce as much oil as possible at the cheapest rate possible. So that what we may lose on the one hand could well, indeed, it seems to me, be retmned `to the public On th~ other. Would you agree generally with that statement ~ Mr JoNEs Yes I think that you have brought up an extiemely important principle, arid that is that the total economy benefits in a variety of ways from a commercial venture. We have emphasized here the royalty payments and the bonus paythents but there are many other aspects of it You are right Senator HANSEN. I think one other area that concerns me is that I look upon the creation and the operation of this oil shale industry as an added way to provide jobs for Americans, to add to our tax base in this country. We might go abroad, as we have been doing, and as we were brought up short with the trouble in the Middle East, to recognize that our security may hang at times on a very tenuous reed when we become too dependent on foreign sources of supply. But I think there ought to be something said, and it ought to be noted that when we develop an industry, and if we maximize that development in this country we are going to benefit, the public would benefit, in a great number of ways. We are going to create jobs here in this country. We are going to add income to our economy-I do not know whether I said tax base or jobs, but they go hand-in-hand. All of these things can happen, and I say this because in observance of the application of these public land laws and with specific reference to my own State of Wyoming, I know we have been concerned about the revenues that accrue to the State and county governments in Wyoming from the rental and use of our State-owned lands. There are those who say these rentals have not been high enough. But I think a far more important consideration is what happens when these lands are put to use. It is interesting in this connection to recog- nize that the rental which accrues to the State of Wyoming in many instances is a very small part of the great good that accrues to the State of Wyoming and to the school districts, and to every other arm of government as you think of all of the series of processes that take place when you get something going on publië lands, and I think this applies here. I would invite your observation if you feel that that is right. Mr. JoNEs. Well, I could not agree more with any set of principles than the ones you have been enunciating. To put this into one set of terms, I suppose the development of a 100,000-barrel-per-day plant of shale oil would probably generate a community of between 15 and 20 thousand people. Senator HANSEN. I know a number of studies have been made in this whole area of the economics of the oil industry. Within the last few weeks, I understand three companies or con- sortiums, or maybe individual companies, have indicated they are PAGENO="0245" FEDERAL OIL SHALE PROGRAM 241 going to build some refineries in Japan, taking advantage of the in- creased demand for petroleum products over there. I understand Chase Manhattan, and they have a representative who will be testifying here later on, either today or tomorrow, that, gen- erally speaking, as they have studied 29 or 30 major international oil companies, their studies indicate that a company must have a profit margin of around 12 percent if it is going to be successful and con- tinue to meet the competition of well-managed companies. Did I understand your testimony correctly when I inferred that, as you look at it, there would probably not be sufficient profit incentive in an oil shale operation to stimulate much interest with the rates as they were suggested by the Secretary? Mr. JoNEs. The royalty part of it is part of the package that we feel in toto would tend to hold development of oil shale back. As I stated previously, given the right kind of guidelines it appears that an oil shale industry might be developed on the basis of reason- ably anticipated technology in the short-range future, such as the next decade, that would be competitive with the average of mining and manufacturing, which is in the neighborhood of~ 12 percent or maybe a little bit better. Now, it seems pretty obvious to me that a new industry, which ob- viously has hazards that the traditional industry does not have as many of, is going to have to hold out the promise of as good a return on capital as going into another industry or capital will not flow into it. This is fundamental to everything I have said. Senator HANSEN. Well, in that connection, I note that some of the oil companies are acquiring substantial coal leases in my State. I think your company may be one; am I right, that you have? Mr. JONES. You are correct. Senator HANSEN. Would it be fair to say that whether you go fur- ther into the hydrogenation of coal-maybe I should not say further- but whether you go into it or not, I am aware that our State university and the Bureau of Mines Laboratory on our university campus has done some good work in this area-whether you go into that or whether you might come into the Athabaska tar sands up in Canada, or whether you would give greater attention to uranium-and we have got quite a uranium boom going on in Wyoming now-I suspect which way you go will reflect your judgment as to where the greatest opportunity for profit lies. Would that be fair to say? Mr. JoNEs. That is a very fair statement. I think it is important here to articulate one point with which I am sure everybody would agree. Although we do not know exactly what the growth of energy demands is going to be, we are pretty sure they are going to keep growing, and we can be positive that it will be met. As a gap develops between tradi- tional suppliers of energy and the total demand, the system will make up the gap, and if it does not come from one source it will come from another. Now, not referring to operations in my specific company but in the industry as a whole, industry will move to supply the requirements that the economy puts on it, and if, for one reason or another, development PAGENO="0246" 242 FEDERAL OIL SHALE PROGRAM of shale oil is held back, this simply means, by inference, that some other supplier of energy will move in to fill the gap. You imply this energy source to be coal, and it could be. You also indicated other courses of action which might develop, some of these being outside of the purview of the domestic companies. But the facts are that the gap will be met, and if the gap is met by the promotion of something other than shale, with a delay in the de- velopment of shale technology, it obviously would be fighting an uphill battle to come into the picture at a later date. Senator HANSEN. I appreciate your re~ponse to that question. I would just like to observe, in closing, that as nearly as I can deter- mine, there have been any number of experts who have tried to dif- ferentiate betwen our accomplishments in this country and the accom- plishments of other countries, and although they do not agree in toto, I think there has been substantial agreement on this fact: and that is, that Americans have at their command a greater energy source than does any other country, and I suggest that it is very clearly in the na- tional interest not to minimize the future potential of that energy re- source, but rather to ~make it as great as we possibly can. I recall a few years ago that it took about 48 percent of the total labor force in Russia imply to provide sufficient food and fiber for the needs of the Russian people. We can do it with maybe between u sixth and an eighth of that number, and I am inclined to think it is because we have a lot of tractors around, we have a lot of electricity around that other countries do not have. I would hope that in our desire to develop this great resource we would bear in mind that this is the important consideration: we should not lose sight of-and let us not fool ourselves into thinking that our major concern is to try to see how many tax dollars, how many royalty dollars, we can take directly from the industries that are developing this resource and put them into the Federal Treasury-the jobs that we can create, the tax base that we can build, the homes that we can provide, all of the other things we can do if we do this job well and make it as attractive as possible for industry to do the job that I am sure it will do if given the green light. You made an excellent statement, Dr. Jones, and I appreciate it. Mr. JONES. Thank you. I wish I had been foresighted enough to include your last statement in my remarks. Senator Moss (presiding). Thank you, Dr. Jones. I heard your prepared text, and then I had to leave the hearing room during most of the questioning. I do think you have made a great con- tribution to the record, and we are glad to have it. It represents the position and point of view of a great company, actively involved in the petroleum field, in both shale research and development as well as the production of petroleum, so your practical recommendations are certainly helpful to this committee. We do thank you and your as- sociates for coming here. Mr. JoNEs. Let me again thank you all for the privilege of being before this panel. Senator ALLorr. Thank you, Doctor. (Subsequent to the hearing, the following additional statement was received:) PAGENO="0247" FEDERAL OIL SHALE PROGRAM 243 HUMBLE OIL & REFINING CO., Houston, Te~., October 26, 1967. Hon. HENRY M. JAOI~SON, Chaiirinain~ Uom~ntttee on In~terior and Insular Affo~irs, U.S. Senate, Washington, D.C. DnAR Mn. CHAIRMAN : In response to your suggestion made during the oil shale hearings held by your Committee on September 14, 1 would like to submit this letter as a supplemental statement for the record. You indicated that such a procedure would be acceptable. During the question and answer period following my testimony, I was asked to explain why we feel that a royalty rate of 5 percent should be applied to shale oil production from public domain lands as opposed to the 16% percent royalty that is applied to oil and gas production no Federal submerged lands on the Outer Continental Shelf. As you recall, our position was that a royalty rate of up to 5 percent should be imposed which is more traditional for the types of extractive industries that are more comparable to the oil shale industry. These include phosphate, sodium and potash, which also come under the Minerals Leasing Act. Fundamentally, the oil shale and offshore oil and gas operations are completely different. In the case of offshore operations, high risk factors exist in locating and proving the presence and productivity of the minerals sought. However, once the presence of the mineral is proven, the state of the art for production is well-advanced and the unit cost to produce a barrel of oil or a thousand cubic feet of gas is relatively nominal compared with the product value and is predictable with a fair amount of certainty. Conversely, in the case of shale oil, the mineral has already been located thereby necessitating a very minimal amount of exploratory activities. On the other hand, in the case of oil shale, a high unit cost is required to produce a barrel of oil because of the complex production operations that require mining, crushing, retorting, upgrad- ing and disposal of large amounts of waste material. In addition to the very complex production operations Involved, the state of the art for producing oil from shale is an embryonic stage, and the costs are difficult to predict. Hence, the great risks that are associated with producing oil from shale are related to the production operations and are not greatly influenced by exploration activities. The less favorable unit of production costs for shale oil and the technological uncertainties, as opposed to offshore or other conventional production, present a major barrier to the development of an economically viable synthetic oil industry. The technological risks and high operating costs for shale oil coupled with a burdensome royalty rate, will place It at a distinct competitive disad- vantage which will seriously reduce the commercial attractiveness of shale oil and therefore postpone needed research and development efforts and investment. During the colloquy on royalty rates, one of the Committee members expressed an interest in royalty rates for other hard rock minerals in the public domain lands. We have surveyed these royalty rates and compiled them in the tabulation attached hereto entitled "Comparative Royalty Rates". The minerals listed in the schedule are all those leasable under the Mineral Leasing Act of 1926 as amended. All other minerals produced from Federal lands such as copper, uranium, zinc, lead, iron, stone, sand, gravel, and many others, are subject to location under the mining laws of the United States, and are produced free of royalty. During the question and answer period, an inquiry was also made as to Humble's position on the need for a Federal recordation statute such as S. 1651 which was introduced at the request of the Department of the Interior. This bill if enacted into law would require a declaration of interest to be filed with the Secretary of the Interior with respect to all mining claims on public domain lands At present all mining claims are required by state laws to be recorded in the appropriate county records Since these county records are available to the public we do not believe that the enactment of legislation such as S 1651 is necessary for prompt determination of questions of validity of existing oil shale mining claims by the Department. This bill would, of course, centralize the recordings and eliminate the necessity for examination of individual county records to obtain information as to mining claims. Insofar as the bill applies to oil shale we would not oppose its enactment particularly if the Secretary feels that it would expedite the prompt determination of the validity of the many oil shale mining claims now in contest Sincerely yours, CHARLES F. JoNEs. PAGENO="0248" 244 FEDERAL OIL SHALE PROGRAM Comparative royalty rates Mineral Royalty required by law Royalty currently imposed by Federal lease Comments ~ Oil and gas: Onshore, not within known geological struc- ture of producing oil and gas field. Onshore, within known geological structure of producing oil and gas field. 123'~ percent Not less than l23~ percent. l23'~ percent From l23~ to 25 percent. Graduates according to daily average production. Outer Continental Shelf lands. do 163~ percent Coal: Mined by underground methods. Mined by stripping Pbosphate_.. 1~lot less than 5 cents per ton. do Not less than 5 per- cent of gross value, 15 to 20 cents per ton. 173/2 to'223/~ cents per ton. 5 percent of gross value but not less Royalty varies from 23~ to 10 percent depending upon coal quality and location. Royalty varies from 3 to 9 per- cent depending upon coal quality and location. Sodium Potash Not less than 2 per- cent of gross value. do than 25 cents per ton. 5 percent of gross value. do Senator Moss. Our next witness will be Fred Hartley, president of the Union Oil Co. of California. Mr. Hartley, would you come forward, please. We are pleased to have you, sir. If you have any associates ac- companying you, they may come to the table also. Would you introduce your associate. We are happy to have him. STATEMENT OF FRED L HARTLEY, PRESIDENT, UNION OIL CO. OP CALIFORNIA; ACCOMPA~TIED B! HAROLD H. STREAM, MANAGER, OIL SHALE ACTIVITIES Mr. HARTLEY. I would like to introduce Harold Stream, who is manager of our oil shale department, and I am sure he works full time, along with his mining engineering associate in coordination with our research department and other technical arms of our com- pany, with the responsibility to keep going forward in the area of oil shale development. Senator Moss. Thank you. We are glad to have you, Mr. Stream. Mr. HARTLEY. I am honored to have been invited to appear before you today and I appreciate your consideration in scheduling my appearance so that I may return to the west coast this afternoon. Union Oil Co. of California first became interested in oil shale about 1915. In 1920, it established an oil shale department headed by Rod Burnham. Incidentally, I am happy to report that Mr. Burnham celebrated his 80th birthday last year by taking a `boat camping trip down the Colorado River. It must have recalled memories to him because from that river you can see the outcroppings of the Piceance Basin oil shale field. Mr. Burnham and his staff set up an office in Denver in 1920 and immediately commenced investigating the oil shale country. A mill- PAGENO="0249" FEDERAL OIL SHALE PROGRAM 245 site was purchased and by 1925 about 20,000 acres of patented oil shale lands, including bottom lands, had been acquired. In the meantime, Union was also pursuing its study of retorting methods in this country and abroad. With the advent of the great eastern Texas fields, followed by the fields in California, activity in oil shale slowed down but did not stop. Union continued to acquire oil shale lands, water rights and to study developments in the field ofretorting. With the onslaught of World War II, Union accelerated and ex- panded its oil shale research and development program. As a result, a novel underfeed-type retort was invented and recently emerging catalytic hydrogenation techniques were successfully applied to oil shale. After the war, Union continued its pilot plant study on retorting and refining with such success that it felt justified in constructing a shale demonstration plant on its Colorado properties in 1955. That plant cost $3.5 million. The operation of the demonstration retort re- sulted in many improvements and innovations. The capacity of the retort was finally established at substantially over 1,000 tons per day. Concurrently, Union continued experimenting and developing with underground mining techniques at a near commercial level and shale oil refining processes were confirmed at pilot plant levels. All in all, Union's expenditures on the oil shale project at this point had reached about $10 million. In 1958, the demonstration plant was shut down; however, evalua- tion of results was continued in Union's research facilities in Califor- nia. As a part of its continuing oil shale effort, a commercial demon- stration of shale oil refining was carried out in cooperation with the American Gilsonite Co. in the Gilsonite Refinery in Colorado in 1960, In this operation gasoline and distillate products were produced and marketed in the local area. During the period from 1960~64, Union's efforts were principally in the area of mechanizing oil shale mining and perfecting its titles. Since 1964, Union has been expanding and accelerating its activities in the field of oil shale. A large part of its expenditures have been on account of litigation with the Department of the Interior involving the status of unpatented claims. It also has investigated and is investigat- ing other types of retorting, both in this country and abroad. The rest of my remarks will be addressed to the regulations proposed by the Department of the Interior for leasing a limited area of Fed- eral oil shale lands under the Mineral Leasing Act of 1920. Union Oil Co. of California urges support of the leasing of Federal lands undOr proper and fair regulations. This would be a giant step toward the development of viable shale oil industry which will benefit U.S. national security, its economic growth, and its supply of foreign exchange. Union believes the proposal for leasing Federal lands to private enterprise is particularly appropriate. It believes the industry could not be developed faster or more economically by any other means. For all these reasons, and in view of the public interest-and I add public criticism~-~which any step toward opening the Federal shale reserves will provoke, the decision of the Secretary of the Interior to proceed and the issuance of proposed regulations merit commendation. PAGENO="0250" 246 FEDERAL OIL SHALE PROGRAM It is a source of dismay, however, that the proposals are so drafted that no businessman would be likely to risk his time and money in shale oil if he had any reasonable alternative. Shale oil is an emerging industry. Extraction and refining of shale oil has not yet been achieved in, this country on a commercial scale. I am sure they will be. The industry needs a `substantial investment of time, manpower and money, backed up with a good share of stock- holder patience. In our opinion, the proposed regulations fail to set the necessary framework for development of an oil shale industry. I will comment on various aspects of the proposed regulations and offer our suggestions for improvement. I. The Department's proposal for selection of acres for leasing provides that the Secretary will publish notices from time to time designating areas for the conduct of particular types of mining, extrac- tion or processing which will be made available for leasing. Areas are to be selected with a view to encouraging research on a variety of mining and processing methods under a variety of conditions, taking into con- sideration principles, of conservation and environmental protection. No more than 30,000 acres are to `be so designated. We suggest the following selection procedures as preferable: (1) A committee composed of representatives of the Bureau of Land Management, the Geological Survey, and the Bureau of Mines prepare a leasing map of oil shale lands divided into blocks, each of which, in the opinion of the committee, would constitute a logical and economically feasible development tract. (2) Each block limited to either about 5,000 acres maximum, or or lesser acreage containing not more than about 1 billion barrels of economic reserves-and I add at this point economic reserves usually are considered to be those reserves that contain 25 gallons per ton of shale oil potential or higher. May I explain at this point also, because of the varying depths of the oil shale seams, I think there has been some reference to that today, some seams are as thin as 30 feet, some 60, some 100, some up to 2,000, `and obviously, if you gave a lease out of 5,000 acres and a 60-foot seam, that would contain, let us say, x barrels of oil. If you gave out a lease which `had 2,000 feet of thickness and you gave out ~,000 acres, you would give 2,000 divided by 60, some ap- proximately 33 times~ as much oil to the potential leaseholder. So we think, naturally, in the public interest the `Secretary of the Interior should be able to vary `the acreage depending upon the quality of the shale oil reserves underneath the particular block outlined by the committee that I previously described. The CHAIRMAN (presiding). Mr. Hartley, on that point, is the information regarding the formation of the geological area we are talking about known, in the judgment of industry people like yourself? Mr. HARTLEY. I would think that the people in the Bureau of Mines, Geological `Survey people, have spent a lot of taxpayers' money get- tmg thTs information, and I consider it to be pretty reliable; at least within file degree of accuracy that is required here as to whether you are talking about a billion barrels `or 900 million, and I do not think that is of particular concern. The area in general, the geological for- mation, is pretty well known. PAGENO="0251" FEDERAL OIL SHALE PROGRAM 247 I iasten to add, however, that. if that were. a concern, a man could be CII a prov i~iOJUI I lea~e of 5.0( )0 acres on the a ssn mpt ion that the geoic'gy was 511(11 and such. if he happened to get' a \Vi1I(lfali and found out the geology was ~() percent one way or the other, 1)erhai)s then he wonht get ~. fUrther O[)pOl~ti1flht to ~idj~~t his a(~Ieage hohlings. 1 c~~iU' :ler that to I )~ ~1 inerha 1IR~ 1111(1 not of aiiV ~ireai- (()ncpl11. I aink the iev }~O]I(t i~, 20() acres wit Ii ~~`)O( ) of thje1~iiess equals nhout a billion barrels ol oil, whereas 5,000 acres with 60 feet of thick- ness equals about a billion barrels of oil. Senator ALLOTT. Mr. Chairman. The CHAIRMAN. Yes, Senator All ott. Seiiator ALLOTT. I think, in view of the fact that many people who might read this record might be somewhat confused by this, it should be made perfectly clear that there is no such thing as uniformity throughout this entire area, either as to thickness of the shale formation or as to the kerogen content of the shale. Would that not be true, Mr. Hartley? Mr. HARTLEY. Well, Senator, within a given area, in fact, the only thing that really makes the entire shale oil mining and retorting system viable is the fact that Mother Nature has been pretty uniform. If it were not so, I think the entire subject would be only of act~demic interest. We to'day in our mine and other mines that I have inspected, including the Bureau's, are impressed with the tremendous uniformity of the oil shale deposit. We are somewhat appalled at the lack of uni- formity of the roof structure and the hazards involved in mining potentiality of roof falls, and so on, which perhaps corresponds to the failure of oil wells after being in production for some. time, due to sand falling back in, an'd so forth and so on. I do not mean to say there is not the hazard within the oil shale operation, but Mother Nature has done a pretty good job of being uni- form within `a given area. Senator ALLOTT. Let me make my point very clear here because there will be a great many people who will read this record who have never seen any kind of a mining formation. But you have formations running all the way fr~m 25 feet in thickness up to possibly `as high as 2,000, that you have proven out, I think, and find the facts to be that very little runs 2,000 feet in thickness. It has been estimated that some of it runs as high as 70 gallons per ton. But how much can be proven out at 70 gallons per ton is at the moment more or less a speculation also; is it not, as of this moment? `Or do you feel you know? I have `been told that all of the private drilling there together cannot definitely define these areas. Mr. HARTLEY. I think that the various p'arts of the basin have to some degree been explored, some more than others, and I am not trying to say that the ent ire area is uniform. What I am trying to say is that if there is a 60-foot seam in a given area of 5,000 acres, that that particular seam is relatively uniform. Senator ALLOTT. Right. Mr. HARTLEY. And th'at there could be a 2,000-foot seam area within, let ns say, some limited geography, I do not know exactly how many acres, it could be only 200 or it might be 5,000 that, too, would probably be quite uniform. Are we together now? PAGENO="0252" 248 FEDERAL OIL SHALE PROGRAM Senator ALLOTI Yes, I think we are together The thing th tt I wanted to negate was the concept that some people might get that this was just a uniform strata with a uniform quantity of kerogen in it, and thit it did not vary Mr IIARmEY Going on here, on point 3 First, to recapitulate here, we suggested that the leasing map of oil shale land divided by blocks be prepared Secondly, that we establish the size of these blocks in the way that I have indicated; and then, point 3, blocks be designated by nuirtbers, as is the practice in oil and gas leasing on the Outer Con- tinental Shelf, and leases be issued only for whole blocks. (4) The Bureau of Land Management then called for nominations of blocks to be offered for lease and the Department of the Interior select the blocks to be offered, taking into consideration the factors suggested in the Department's proposal and the blocks nominated. We see no justification for limiting the offering to a maximum of 30,000 acres or any other amount, If the suggestions for leasing and lease terms, which I will discuss later, are followed, the Government's interests will be adequately protected and abuses avoided. The Department proposes an initial "research term" covering a designated portion of the leased property for a period to be designated by the Secretary, not in excess of 10 years. The lease is subject to ex- tension for a "commercial production term" so long as mineral prod- ucts are produced from oil shale in paying quantities. The extension occurs only if the Department fittds the lessee has conducted its re- search activities in accordance with the plan set forth in its applica- tion and has "in the course of the research term" developed a mining and processing method which is: (1) commercially feasible; (2) provides for optimum recovery of minerals to be produced; and (3) meets the Department's requirement regarding prevention or minimization of air and water pollution. Read literally, those lessees who had developed mining and processing methods in years past would not be eligible for extension for commercial production. The lease may be extended for the commercial production term only with respect to the area which contains the quantity tf mineral deposits deposits determined by the Secretary to be needed for commercial production, allowing reasonable reserves. The Department proposes an annual rental of 50 cents for each acre or fraction thereof. Apparently, this rental is to be calculated on the entire area covered by the so-called lease, even though only a small fraction is immediately available to the lessee and even though only a portion may ultimately be available for commercial exploitation. The Department makes no express provision for any work obliga- tions. Possibly they are to be inferred from the requirement that the applicant described its plan of research and development during the research term and the general nature of the commercial operation soua~ht to be developed. We believe the foregoing provisions are unrealistic, inequitable and unworkable, and propose the following instead: 1. Leases be issued to qualified applicants covering a specified block or blocks for an initial term of about 10 ~ears at fairly high thinimum PAGENO="0253" FEDERAL OIL SHALE PROGRAM 249 rentals in the range of $250,000 to $500,000 per year. Higher rentals could be bid and would be a factor in evaluating bids. Amounts ac- tually expended on research and development of the leased properties or their commercial exploitation would be credited against rentals After production has been achieved, rentals would be credited against royalty payments. Applicants would be limited to a total of about 5,000 acres maximum, or lesser acreage containing not more than about 1 billion barrels of economic reserves-25 gallons per ton or higher. 2. Recognition be given to those companies who have expended sub- stantial sums in the past on the development of oil shale mining and processing techniques by permitting them to credit at least 50 percent of such expenditures during the past 20 years against their rental obligations. 3. If, at the end of the initial term, commercial production is underway on a particular block, the lease as to that block would remain in effect so long as such commercial production continues. Absent commercial production, the lessee would have the option to extend the lease term for not to exceed two periods of 5 years each, at an escalating rental subject to the same credits as those permitted for the initial term; in other words, again, to provide dollars to conduct research. I might add at this point that I would be entirely opposed to a bonus per se because I thing the objective of the Department of the Interior is to get the shale off the ground. The way to get shale oil off the ground is to get the maximum num- ber of people, corporations, entities of all sorts, conducting research and development, and I would like to see every dollar spent go into research and development, not to the U.S. Treasury for various other purposes that you gentlemen sometimes approve. Union believes these procedures would (1) stimulate the lessee to achieve commercial production as soon as possible, (2) discourage speculation and speculators, and (3) assure return of acreage to the Government within a reasonable period if commercial production or substantial efforts therefor were not achieved within a reasonable time. May I add, if a man fails to conduct his research work and does not pay this $250,000 to $500,000 a year out in research, and he has no program to do so, then I would propose that the terms of the lease would be such that he would forfeit his rights and the land would return to the Government to be put into the hands of other more serious-minded people who want to do something about oil shale. Assuming each applicant could show adequate financial resources, awards should be based upon the size of the rentals offered which, while offered in terms of cash, could also be reasonably regarded as work commitments. While recognition would also be given to those who have spent their time and money on oil shale research and develop- ment during the past 20 years, the conditions proposed would prevent undue advantage. As to qualification of applicants, the Department's proposed regula- tions are permeated with discrimination against those companies which either having existing oil shale acreage or other oil resources. For PAGENO="0254" 250 FEDERAL OIL SHALE PROGRAM example, (1) the proposed regulations state their purpose is to efl- courage participation by companies not favorably situated with respect to access to reserves of the minerals present in oil shale, (2) the applicant is required to set forth its interest in nonfederally owned oil shale lands and the reasons why it needs federally leased land for its proposed research and development, (3) in evaluating appli- cations, the Department is to consider the applicant's need for leased lands to conduct its proposed research and development and projected commercial activities, as well as its need for reserves of the minerals proposed to be produced, and (4) the applicant is required to describe the reserves it then owns or controls of oil and other minerals of the kind believed to be present in the lands applied for. This discrimination is not authorized by any provision of the Mm- eral Leasing Act of 1920 nor by any considerations of morality or equity. No criteria are established for determining what constitutes iiot favorably situated with respect to oil shale or need. Quite apart from the difficulties in orderly and fair administration of such provisions, they constitute an unwarranted administrative unsurpa- tion of the prerogatives of the legislative branch. The awarding of leases on Federal lands on the basis of need of the applicant from any viewpoint is novel and not designed to father a healthy new in- dustry nor to assure to the Government the best return for its leases. As a practical matter, it would seem difficult to award bids at the same time on the basis of the other criteria established and of need. When does one outweigh the other ~ The Department's proposed regulations provide for a minimum royalty of 3 percent of gross value at point of shipment to market of the mineral products from the oil shale. Some lessees will doubtless mine oil shale, crush it and then retort it to obtain the material which, after hydrogenation, will be shipped to refineries. Others may well use some method of in situ retorting. Further definition of "point of shipment to market" is therefore needed to avoid inconsistent treatment and discrimination. Although the term mineral products from the oil shale apparently includes shale oil and other mineral byproducts of the retorting or other extraction process, the term should specifically include shale oil. Oil shale is mined and processed to obtain shale oil and it is reason- able to recognize the value of the shale oil itself for the purposes of computing both royalties and depletion. Its value can at this point be correlated with the values of other known low-grade crude oils. The regulations also provide that the annual net income royalty rate shall be a percentage of net income from production of mineral products from oil shale to the point of shipment to market. These rates vary from 10 percent of that part of net income which is no more than 10 percent of investment to 50 percent of that part of net income which is more than 20 percent of investment. In effect, the 3-percent royalty is credited against the net income royalty. Net income is defined as taxable income computed without allowance for royalty and depletion and investment is defined as the original cost less depreciation of capital assets Under this provision a successful operator will find himself in a bracket paying ~0 percent of his pretax profits without allowance for royalty and PAGENO="0255" FEDERAL OIL SHALE PROGRAM 2511 depletion plus at least a corporate income tax of 48 percent of his pretax profits remaining after allowance for royalty and depletion. It is submitted that these rates are excessive and unrealistic; and, may I ad lib that it is well known that the Arabs are tough traders.. But may I suggest Mr. TJdall's suggested devices would receive the plaudits of Karl Marx if he were alive today and, no doubt, John Kenneth Gaibraith, who is alive today. We believe there should be one royalty rate based on gross value~ of the shale oil produced from retorting by whatever means. We suggest that the royalty bear the same ratio to the rate of per- centage depletion for income tax purposes established for shale oil as the customary 121/2-percent royalty rate bears to the rate of per- centage depletion established for oil and gas. And since it has been stated here, what is the royalty, is it an eighth or is it a sixth, that is 121/2 percent or 162/3, and since 121/2 percent is given on land, 16% is given over water; if you would ask my opinion on that subject, I would say it ought to be the reverse of that. I think somebody brought that point out, and I certainly agree with him. Nevertheless, whatever number is used is tied to the 2~T1/2 deple- tion, and if they want to give the shale industry 27'/2-percent deple- tion, then the royalty rate be either 121/2 or 162/3, depending upon the' good judgment in that area. Presumably, if it matched up with land- based oil, if you were consistent, it would be 12½ percent. I think one other point I would like to make at this point is. and that has been brought out from listening to testimony this morning, there seems to be a little bit of confusion as to what we are really try- ing to do here. As I understand what the Secretary is trying to do, he' is trying to make lands available to encourage a research effort, and I am all for him on that. I do not propose bonuses at this time in what I would call phase I of the Department of Interior's program.. But I would, on the other hand, let people bid on the basis of what they are prepared to do in the way of making a definite contribu- tion to the development of the industry. Now, after this industry has been developed, there is still going to be about another 500,000 acres of this land left. Now, come along with your bonus program. Now the pioneering step is over and every- body and his brother will want to get in it at that point, and at that time, in order to determine who should get the leases, then bring on your bonus bidding at that time, because at that point you are not bidding to carry on a research program, you are bidding to go'into commercial production. The proposed regulations provide that lease royalties shall be sub- ject to readjustment at 20-year periods succeeding issuance of the lease. The justification for this is not readily apparent. In addition, there would seem to be no justification for measuring the initial 20-year period from the date the lease issues, rather than from the date of; the extension for the term of commercial production. The proposed regulations require the submission of a final report on completion of the research plan. The report is to summarize the state of the art and to cover conclusions and recommendations and to include a complete detailed disclosure of all materials, processes, and equipment involved, and all the technical and financial data needed PAGENO="0256" 252 FEDERAL OIL SHALE PROGRAM to enable any qualified person to carry out the work performed under the lease. It is also to include recommendations for further improvements and such other representations and information as the Department may specify. Persons designated by the Department are to have access to all operations and facilities. No report may be copyrighted and the Secretary has the full right to publish, reproduce, and use, and to have others do so, the reports and any information obtained by the Secretary pursuant to his regulations. The Secretary must promptly publish reports received, and make other information availa- ble to the public. These provisions are most objectionable. Each applicant, who has not already done so, will doubtless develop its own processes and technology through the use of its own funds. There is neither precedent nor moral justification for requiring it to share its hard-won knowl- edge with the Department or with others. Provision is made for acquisition by the Government of title to all inventions made in the course of or under the research term of the lease. The lessee is required to issue licenses-at reasonable rates-on patents owned by it which are necessary to permit others to practice inventions made in the course of or under the research term. In the case of a proper showing of exceptional circumstances, the lease may contain provisions granting greater patent rights to the lessee. Whatever justification there may be for such provisions in the case of contracts covering Government projects to be carried out by pri- vate contractors financed by Government funds, none exists in the case of a lessee of Government oil shale lands. In addition, they place severe penalties on those who, like Union, have pioneered in the field of oil shale mining and retorting and have achieved at considerable expense, their own patented processes and their own know-how. These disclosures and sharing requirements constitute a serious bar to the future development of the shale oil industry and these restric- tions should be deleted. Further, they encourage speculation by com- panies unwilling to commit their capital, and place the Government in the position of handing out windfall profits to inactive or unsuccessful companies. President Johnson is reported as saying he doesn't think Middle East conditions require a speedup now in development of oil-bearing shale deposits in Colorado and neighboring Rocky Mountain States. But if U.S. petroleum supplies are threatened more than they are now, steps can be taken to develop shale oil faster. I do not interpret the President's reported remarks as indicating any difference in views from those which I have expressed. So far as I am aware, there is nothing in the present Middle East situation which `imperils the adequacy of petroleum supplies to meet the present re- quirements of the United States. The situation does, however, point up our country's need for assur- ance of a high level of domestic petroleum supplies to meet vastly increased future requirements for civilian use!, of which I am sure the President has knowledge from the Government's own economists. Moreover, there is always the possibility of substantially imicreased defense demands. PAGENO="0257" FEDERAL OIL SHALE PROGRAM 253 In the long run, all these requirements will have to be supplied from both crude oil and shale oil. I am sure all realize that a full-scale oil shale industry cannot be developed overnight and that it is going to require time and the expenditure of literally hundreds of millions of dollars. All that the Secretary of the Interior has proposed, and all that we are now discussing, is the first step, a step that the President indi- cates may break into a run if the country's petroleum supply is fur- ther threatened. In summary: (1) We recommend the Secretary of the Interior for taking this first step toward the encouragement of a shale oil industry. (2 We feel, however, the Department's proposed regulations have not been designed with intent to speed the development of a viable oil shale industry and are, in fact, unworkable. (3) We believe the suggestions we have made are workable, will encourage neither speculation, discrimination, nor special advantage, and will expedite the emergence of a shale oil industry. Gentlemen, in anticipation of possible questions you may have as to Union's current activity on oil shale and our attitude relative to its future, I would like to make the following comments: A few months ago we announced plans for a new l40,000-barrels~ per-day oil refinery near Chicago. Construction now estimated to cost approximately $200 million is underway. You will be surprised and I hope pleased to know that we have incorporated into the design pro- vision for processing 70,000 barrels per day of synthetic shale oil. Further, the shale oil feedstock will be essentially free of sulfur-a bonus of great importance in our concern with air pollution. However, as a precautionary measure and in recognition of the fail- ure of the executive branch of the Federal Government to establish a favorable and equitable climate for the oil shale industry, we are also designing the plant to process 70,000 barrels per day of synthetic tar sand oil from Alberta, Canada. It is to our shame that our good neighbor to the north has pioneered the way in synthetic oil production while the Department of the Interior for the past 20 years has failed to provide the necessary leader- ship to create an atmosphere conducive to similar private investments in the United States. And may I hasten to add, American capital is primarily involved in the Canadian project. In addition to a viable first phase leasing policy by the Department of the Interior, Congress and/or the executive branch must provide adequate percentage depletion applied to the raw shale oil, Further, industry must have stability and reliability in respect to the foreign oil import policy which *has deteriorated into a chaotic political shamble over the past 3 years Given an equitable environment, shale oil can be on the threshold of commercial reality Do you not think the citizens of the State of Colorado and other Rocky Mountain areas are just as entitled to new job opportunities as the citizens of Alberta ~ I think you will also be interested in our continued research activity First, we have undertaken an experimental program on a retorting process developed in West Germany. Colorado oil shale arrived in that country quite recently and the program is now underway. Second, further experimental work is underway in our laboratories at Brea, Calif., both on retorting and refining. And third, Union Oil 76-SZi-67---i7 PAGENO="0258" 254 FEDERAL OIL SHALE PROGRAM Co. of California recently-as a matter of tad, the agreement was signed last Friday-entered into a short-term lease agreement with Battelle Development Corp., an affiliate of Battelle Memorial institute, under which Union is making its experimental site and shale mine in Colorado available on nominal terms to expedite Battelle's program for the development of a novel process for extra~hng oil from shah. Even though we have our own pioveil retorting process, Union is vitally interested in fostering any developments whicli might speed up and lead to better and cheaper ways to commercialize the vast shale oil resources of the United States. Considering, gentlemen, the never-ending tenuous world situations that the United States is confronted with, further indecision on oil shale policy is the height of fOlly. We are appreciative of the fact the Interior Department. is moving. Let's, through industry-Government team effort, get going-in the right direction. Now, I would like to present to you for your inspection an exhibit which I think you will find of interest. I am sure there is going to be some testimony given in the next 48 hours that will pertain to the beauty of Colorado, and believe me, as one who spent 5 years directing our shale research program in Colorado, and having enjoyed its beau- ties, I certainly am not against that being a factor to be taken into consideration. But I thought, so that you gentlement would have some facts to go by rather than theories whh~h tend to come out of beautification experts, I would like to show to you here, first a sample of the retorter ash as it comes out of our retort, what it looks like some 7 years later, and I would like to show you this photograph in color, u~atouched I promise you, of the ash deposit area where you will see green grass growing through. Unfortunately, I have no cow enjoying itself in this picture, but I can assure you it~ is edible. Also, these pictures were taken in 1965. Here are three just taken there in the last 60 days which show the same area, and I think it will be comforting to you to know that indus- try is just as concerned as any of you about what this area will look like when a retort plant has passed through and 20 years have gone by and it has left. We do not propose to have an Appalachian dump heap. We propose to return the area to something which certainly will be in keepingwith the beauties of the Colorado mountain scene. May I bring this to you? The CHAIRMAN. Yes. Mr. HARTEY. That is the oil shale ash as produced under the effects of moisture, climate, and sodium, deteriorates in the soil, and a little light ammonia, because the nitrogen compounds that are contained in the oil shale and ammonia production is actually made as a byproduct of the process. As you see, this is a fiatland here. These are more recent pictures. We would be pleased to leave that as an exhibit with your committee. The CHAIRMAN. Fine~ Thank you, Mr. Hartley. We will certainly include this in the files in connection with the hearing. Does that com- plete your statement? Mr. HARTLEY. Well, I had one other exhibit which I sort of hesitate to show you, but perhaps it does illustrate the entrepreneurial spirit of PAGENO="0259" FEDERAL OIL SHALE PROGRAM 255 Colorado. Oil shale has already gone commercial. This is from an entrepreneur up there who makes cuff links. And so we are not going to be the first with our commercial shale plant, and I trust that he has made a small contrthution by paying income taxes on the profit he made from their manufacture. I want to assure you if you gentlemen will give consideration, and implement the recommendation that I have made, I think in a reason- able period to time we are going to have a torrent of money coming to Washington and to the State capitals. The CHAIRMAN. Thank you, Mr. Hartley, for your statement. We appreciate having your judgment on this matter. How far away do you think we are from the development of a com- mercial product? Your company has been involved in shale oil devel- opment for many years, and it is obvious that you have been engaged in research over a period of time, and you, yourself, have substantial personal knowledge of the oil shale problem. How do you see the state of the art at this point in time? Mr. HARTLEY. We stopped our project in 1958 in terms of spending money at the rates of $2 to $4 million a year, because of the two points I made in my presentation: first, if you recall, the 1958 oil imports were coming into this country with no regulations whatsoever, and we were then going to be faced with the problem of making oil shale, pipelining it to our refineries in Los Angeles `and San Francisco, and competing with offshore foreign oil, which, as you know, is produced with benefit of depletion. So we had then to face the issue of, could we compete with foreign oil, with the environment that we were then faced with? We have a depletion law on oil shale at the present time which is 15 percent, `but it is based on the rock, and that rock, as you gentlemen know, there is an awful lot of it out there, and it is not worth very much per se until it is retorted and made in the form of crude shale oil. The U.S. Treasury could simply change the language, and we have requested on many occasions that they change said language to 15 percent on first product from retorting, which is crude shale oil. It is about a 20-gravity crude, incidentally, in most cases from most retorts, and there is a parallel to that. It is the same thing that applies to the retorting of the production of mercury, the depletion. We have not been able to get that through in any way, shape or form. That, tide to the present import policies, make the venture, since it is such a large single, sudden, adventure-bold adventure, unrealistic. I can assure you if we had been given some of the same kind of assur- ance, that were given to Puerto Rico, and companies investing there, so that they would have open markets for foreign gasoline production, for production based on foreign crude oil exclusively, and of the U S domestic market, assurances of that kind, put in contractual form, per haps it would cause a lot of things to happen In other words, ~ e have got to have some confidence restored in the environment in which the shale oil industry is going to be born We neither have it in our present oil import administration, nor do we have it in the present tax regulations So that, in effect, it is the prime deterrent at the present time, in my opinion The CHAIRMAN How far away do you consider commercial devel opment assuming that a program gets underway here whereby corn mercial operations can commence PAGENO="0260" 256 FEDERAL OIL SHALE PROGRAM Mr. HARTLEY. There is no point in having this prograi~ if we are not going to provide these other two environments I have spoken of. You are just carrying on research in a vacuum, and although we are cOntinuing to do so, it is at a much reduced pace. We are trying to encourage others who seem to want to spend money at this point, regardless of the fact that there is this vacuum and, I suppose, because we have an ever-abiding faith in this Con~ress of the United States to eventually provide an environment which will be equitable for the entrance of shale oil into the domestic market. The CHAIRMAN. Senator Allott. Senator ALLOTT. First of all, Mr. Hartley, I want to say to you, I appreciate your fine statement. It emphasizes many of the points I feel are very important at this stage, and I would just like to explore one or two things with you. I had the pleasure-I do not think you were present when I was there-of visiting your plant when it was in operation, and saw it in operation. I was very impressed by the innovations there, and I was also impressed by the reverse process wbich you had developed-at least reverse as opposed to the process which had been worked upon by the Bureau of Mines. You mentioned the Athabasca sands in connection with your re- finery in Chicago. Would you think that, perhaps, with respect to oil shale, we are now at a point of decision as to whether or not we will engage or start a viable oil shale industry, or whether we might, in light of some of the conditions you mentioned, plus others such as patents and lease policies, and so forth, be faced with an alternative of the development of oil products from coal as well as Athabasca tar sands? Mr. HARTLEY. Well, Senator Allott, I rarely make bets when I lose one. If anybody had asked me 10 years ago, that synthetic crude oil from tar sands would have gone on the market commercially ahead of oil shale-I took that bet and I lost. In terms of market, in terms, of location of Colorado, a~d the U.S. consuming areas of consumption, in terms of the longtime proven tech- nology that our èompany has, for one, and I do nGt want to give the impression that we have the only viable technology-there could be others around at the present tirne-~-I felt that, I had great confidence that, the oil shale industry would have been here by now, and again I repeat the only reason it has not is because we have not provided, either by action of Congress or by the executive branch of Government, the environment conducive to that industry getting underway. I think it is a great credit to the leadership in the Alberta govern- ment that they have seen fit to create that environment in spite of the fact they are drowning from oil mad~ from conventional means. The ~ii wells of Alberta are turning out approximately 50 percent of their engineering allowables, and yet they have provided the opportunity for the development of this industry along with the development of their conventional crude oil. Further, as to your comment~ I would not be surprised if we keep on treating oil shale the way we have in the past, that coal may even win out, too, because you are aware of the fact that there is depletion on coal. PAGENO="0261" FEDERAL OIL SHALE PROGRAM 257 Senator ALLOTT. I know you are aware of the fact that for the past several Congresses I have had bills pending to do exactly the same thing that you have suggested with respect to depletion allowances, and that is moving the point of depletion-it only requires a change of a few words-over from the extraction of the shale itself to the point of retort, and I think this is one of the necessary things. There has been a considerable amount of discussion here throughout the day with respect to the Government's wanting to have all the patents go into the public domain and, of course, having spent the money that your company has and that other companies have spent, and particularly your company in this instance, on developing proc- esses, I assume from what you say, this would be a bar to your moving forward in the oil shale industry. Mr. HARTLEY. Yes; definitely. May I tell you a story of actual facts? When we started our oil shale program in 1955, we either had to develop our own mine and enter into all the costs of doing that, or we had what I thought was a very fine alternative; namely, that we could buy the shale rock that was coming out of the mine operated at that time by the Department of the In- terior, and we were willing to pay whatever the Department of Interior was spending to end up with that mined rock, and that turned out to be, as I recall, somewhere between $4 and $5 a ton. That money would have gone, of course, into the Treasury of the United States and reduced the cost to the taxpayers of the Bureau's program. We tried every possible avenue to get our hands on that rock, and we had one legal expert after another in practically all branches of the Government make sure that we didn't get our hands on it. One of the aspects of that was, of course, if we used that rock we would have to turn over our developments to the U.S. Government, so they merely continued to take the dump truck, run it to the end of the mountain up there at Rifle, push a button, push the hoist up and put $5 a ton over the mountain down on the other side. It ended up in dust at the bottom, I guess. So that, perhaps, tells you how; that illustrates to you some of the problems we have had in trying to get realistic Government-industry partnership in this problem. So, naturally, we went ahead and opened our own mine. Why? Because we felt if we spent the kind of money that we had in mind, which turned out to be around $10 million, certainly we were entitled to have patent protection, and on that subject, there seems to be a tremendous amount of misconception. I notice one organization after another in the United States, includ- ing the committee which met here in Washington not too long ago, where they seemed to associate the patent system with monopoly. The patent system, yes, on paper, I suppose, could be said to be monopolistic, but basically it is a system to give a man a chance to handle his prop- ~rty rights and not have them taken away from, him with no repayment for the investment he has made in achieving same. I can assure you that in the oil industry today I do not think I know of any development in the oil refining and the oil exploration business where the developments of the industry are not made available to other PAGENO="0262" 258 FEDERAL OIL SHALE PROGRAM members of the industry through licensing, and I also hasten to add that those licenses are at modest rates. Why ~ Because you never know when you are going to have to take a license from the other fellow. This is the discipline that causes this type of exchange to occur. I can assure you that we have made our information available under agreement with several companies in the United States. We are pre- pared to license our inventions, and any additional inventions we make we will be prepared to license those. As a matter of fact, we licensed and provided the basic information for the refining of tar sands up in Alberta, and that plant up there is running under technology developed to a great extent, as far as the hydrogenation process is concerned, by the Union Oil Co. of California. Senator ALIOTr. I have just one further question with respect to this royalty. You mentioned that Battelle now had a research project going on, for which you are supplying the oil shale. Are you charging them any royalty? Mr. HARTLEY. No. They have a retort worth testing in the field, and they need a supply of oil shale. They need a site close to a supply of oil shale in order to continue to carry out these tests. They approached us as to whether our oil shale experimental site was availa~ble. We said it certainly was, they were responsible people, and under the proper terms and conditions, we are leasing our site to them at a nominal sum of $1,000 a month. That includes the labora- tory we built, office buildings, and so on, and also it is quite a lot of nice, level land which, in that area, is a little hard to find; and they will also pay taxes on any investment they make there that requires an increase in taxes on that site. They have a 2-year period to operate on. We will not have access to their patents. We will get nothing out of this in `their first phase other than in the event we ever proceed with commercialization of their retort in the future we will get nominal royalty credit for the services that we are supplying them with. Senator ALLorr. But you do not participate in their patents in any way. Mr. HARTLEY. That is correct, sir. We are also making available to them free of charge-they are going to have to pay the cost of mining, but free of charge, as far as we are concerned-giving them access to our mountain road, and access to our oil shale mine, and they can take up to 300,000 tons out without accounting to the Union Oil Co. Senator ALLOTT. Thank you very much, sir. Mr. HARTLEY. Incidentally, we wish them a lot of luck. Senator Moss (presiding). Senator Hansen. Senator HANSEN. I do not have any questions, Mr. Hartley. I would like to compliment you on an excellent statement I must say that it is refreshing to hear a presentation, and yours has been the second one this afternoon, that I think gets down to re alities in discussing the facts and the road blocks that are ahead of you and other companies as you contemplate the conversion of oil shale into a usable source of energy that people will have at their dis posal, and I think you have done a good job in pointing out what the PAGENO="0263" FEDERAL OIL SHALE PROGRAM 259 real problem is and what the real concern of Government should be in contemplating the regulations that will have to be devised in order to set forth the guidelines and the rules under which this resource will be developed. I commend you for doing an excellent job. Mr. HARTLEY. Thank you very much, Senator Hansen. I might make one additional remark in regard to what you have stated. I sort of get the feeling that there is some feeling that some- one is trying to steal from somebody. This leaves me at a great loss, this question of royalty to be paid. I do not notice, I have not noticed any disappearance of the Federal income tax. In fact, we are looking forward, shall we say, to an in- crease in the near future on corporate income taxes; although they have not asked my opinion on that subject, I am in favor of that as long as we ask the men to die in Vietnam. We ought to do some- thing about keeping our country on a little more even kneel. But if we are successful in Colorado with a commercial retort, and if it makes money within the framework of the royalty rate provided and the earnings provided in relation to that royalty rate, we expect to pay anywhere from 50 to 60 percent or 65 percent taxes-55 percent income tax to Uncle Sam. May I hasten to add, even overseas we do not get involved to any greater extent than that, so I am at a complete loss as to the concern that someone might make some money, because if we do make some money the employees of the companies involved are going to partici- pate in salaries, those who put their money in, in terms of investment are going to participate-I presume we still believe in the investment system in this country-and I cannot see what this great fear is, unless there is a sinister move on to eliminate the profit system by every devious device that certain areas of Washington seem to be able to dream up in great volume. Senator HANSEN. I just might say that I think I quote you when you say we are looking forward to an increased tax; I am not sure that everyone is looking forward to it. We may anticipate it. But I do not think we all look forward to it, and I am sure you do not. Mr. HARTLEY. It is an expression you use. There is a lady in the room and, perhaps, I had better not use it. Senator HANSEN. The same thought. Senator Moss. Thank you, Mr. Hartley, and Mr. Stream, for your very fine statement here, and we are pleased that you came to make this record for us. Thank you very much. Mr. HARTLEY. Thank you for giving us the opportunity. It has been a pleasure to talk to gentlemen here who are so attentive, and I appreciate it very much. Senator Moss. Thank you. We have a problem now. We are not going to be able to hear all of the witnesses who are listed for today. Unfortunately, time has run on and other commitments are pressing in on us. We did, however, agree that we would hear Mr. Daniel F. Lynch, who is a member of the board of regents of the University of Colorado. I Jo has to leave and attend a meeting of the board in Colorado tomor- row, so we have agreed that we will hear him today. PAGENO="0264" 260 FEDERAL OIL SHALE PROGRAM Our other witnesses, we are going to have to carry ov~r until to- morrow morning when the hearings will contmue.' The scheduled time is 10 o'clock. I wonder whether we ought to start a little earlier. Do you think we should? We will start at 9:30. We will get at least a 30-minute start in the morning, and see if we can cover the remainder of the witnesses tomorrow. We regret the inconvenience that may have been caused to those who expected to testify today, but they cannot be reached. We are pleased to have Mr. Lynch, and we will start again at 9:30 in the morning, after Mr. Lynch has completed his testimQny today. STATEMENT OP DANIEL P. LYNCK, ATTORNEY, DE~1VER, COLO. Mr. LYNCH. Senator Moss and members of the committee, I thank you very much for your courtesy extended to me, not only in hearing what I have to say this afternoon, but also in calling me out of order. I certainly hope that I have not inconvenienced unduly the witnesses who were scheduled to appear before me. It is true, however, that I do have to attend a meeting of the University of Colorado regents tomorrow afternoon or tomorrow morning, so, as I say, I deeply appre.. cia~te the courtesy which is being extended to ri~ie. Because I know that the committee has carried these hearings on late into the day, and because I also know that other concerns are certainly pressing on the committee and members of the committee, I shall not read verbatim the remarks which I have prepared and which I have already distributed to the committee. I assume the members have those remarks and they will be a part of the record, and it will not be necessary for me to make all the points which I made in my prepared testimony. Senator Moss. We appreciate your doing that, Mr. Lynch. Your remarks will appear in full in the record at the end of your oral com- ments and you may summarize as you see fit, and make the points that you wish to make particularly emphatic in your statement. Mr. LYNCH. Thank you, sir. The primary point that I wish to make at the outset concerns the claims which were filed largely in the year 1966. The Secretary of the Interior, in his testimony this morning, has referred to these, and various witnesses who have appeared since that time have referred to the problems which have been created by these claims. I think a few things concerning these claims should be noted. The first thing, which was a little unclear in the Secretary's testimony this morning, is that it is quite clear from an examination of the county records in the counties in which the oil shale deposits, at least in Colo- rado, are primarily concentrated, in Garfield and~ Rio Blanco Counties, and that these claims filed, in 1966 virtually blanket the entire Piceance Basin or at least those portions of the Piceance Basin which have not previously been patented or on which there were not existing pre- 1920 claims. Indeed, there is a considerable overlap between the 1920 claims and the claims filed during the year 1966. In his testimony this morning, the Secretary indicated that he had recommended that the chairman of this committee introduce legisla- PAGENO="0265" F1~DERAL OIL SHALE PROGRAM 261 tion which would require a Federal filing or a Federal notice of rec- ordation of mining claims. I would think that that would be certainly a helpful step forward. It is true that under the present laws which have existed pretty much intact since 1872 that no such notice to the Federal Government di- rectly has been required. But the fact is, however, that the Federal Government, the Depart- ment of the Interior, at least, was quite aware that these claims were being filed at a time sufficiently early in the filing so that by the is- suance of a withdrawal order the Department could have prevented the blanketing of the area and could have prevented the legal situa- tion which the Secretary now advises us he finds himself in. I do not know why the Secretary failed to issue the withdrawal order until January 27, 1967. I do know that he was urged to do so as early as March of 1966. I earlier observed that former Senator Paul Douglas, who has been present throughout the hearings, had previously discussed these claims with the chairman of the Interior Committee. I know that Senator Douglas has a complete list of all the filings in Rio Blanco County from the preemption index which have been by the most active claim- ant or locator of these minerals, or alleged locator of these minerals, one Mr. Merle I. Zweifel of Shawnee, Okla. An examination of that preemption index and of the claims which are filed on record indicates that the first claim in Rio Blanco County by Mr. Zweifel, who has, I am told, something like 97 percent of the new claims in Rio Blanco County, was filed on May 6, 1966. I think it can be fairly said that, had the Department done what ultimately it did do, what ultimately it found to be wise and prudent and necessary-that is, issue a withdrawal order-had it done that in more timely fashion, ~ would not now be in the situation where it is necessary to indulge in a considerable amount of legal activity as to precedents to clearing the title of the land, so that the Secretary's leasing proposals can be carried forward. As I say, I have no notion why the Department of the Interior failed to act in more timely fashion. I do not insinuate, nor do I wish to have my statement interpreted as implying that the Department's failure to act was occasioned by any improper purpose. I have been disturbed as the matter of oil shale development has been discussed by what Senator Allott referred to as the Teapot Dome syndrome. To me, the great distinguished feature between the Teapot Dome as a historical incident, and the development of oil shale is that so far as I am aware there is no evidence at any stage in the oil shale con- troversy that any public officials have been venal or corrupt. That was, of course, the thing that made Teapot Dome such a shocking thing. What concerns me is not any allegations of corruption; it is the fact that the procedures of the Department of the Interior, have not only, under Secretary Udal1~-I do not make this a personal attack on him-but I should say that to some degree under Secretary Udall, but to some degree under his three most recent predecessors, have been insufficient for whatever reason, to protect the public interest. I cited two cases, with which I am acquainted-I think there are probably others I could not document. I have reason to believe that PAGENO="0266" 262 FEDERAL OIL SHALE PROGRAM procedures were not sufficient to guard the public interest, of incidents in which the Government of United States issued patents on land where the same lands had been the subject of patent a~plications in previous years, and where the patents had been previously denied upon grounds other than the failure to perform required annual as- sessment work. I listened to the president of the Union Oil Co.'s testimony showing the concern that some people have that somebody may make a profit. I am not at all concerned that oil companies or other investors in the development of the art, in the technology of oil shale production, should, because of their investment, make a profit. Indeed, I hope they do, because without such a profit there will be no development of any oil shale industry in Colorado and in Wyoming and Utah; and in common, I think, with virtually all our citizens in those States, we look forward to such development. We want prompt and effective efforts taken to increase that probability of such development. What we do not want, however, are these kinds of windfall profits the Secretary has listed-the Secretary has listed these windfalls prof- its-or the prevention of the windfall profits, as one of the purposes of the proposed regtilations. I would say that the two cases that I referred to indicate that windfall profits have been taken in the past. In my prepared statement, I have indicated that I do not bring these cases to the attention of the committee for the purpose of fixing blame in any way on any particular administration or any particular Secretary of the Interior. But again, to illustrate my concern that the Department of the Interior in the past has not had procedures which were sufficient at all times to guard the public interest, I have cited these cases. In the one case to which I referred, the Eaton case, which was the subject of litigation, now no longer before the courts, the patent originally was applied for in, I believe, something like 1928. The ap- plication was denied by the Department of the Interior upon the ground of fraud in the location. It was alleged that some of the locators were dummy locators, and that, therefore, the patent ap- plication ought not to be granted, and the patent ought not to issue. In something like 1948, the lands, still in the hands of the same applicant, were again submitted to the Department of the Interior, and patents were applied for. At that time patents were issued to the same applicants, and apparently there was an ignorance on the part of those in the Department who passed upon the second application that the same lands had previously been denied patents. Now, this error was discovered in the Department of the Interior and steps were taken by the Federal Government, timely, to recover the windfall profits which were made. Because of whatever legal dif- ficulties which may have existed, the Government settled for, in effect, a good deal less money than the particular person in question made out of his investment in these lands. The second case I discovered, really, by poring through the records in Garfield County. This involved the issuance of a patent to a person, or actually to an oil company, where, as to some 500,000 acres of the total acreage involved, the patent applications had been previously denied upon, in some cases, the claim that some of the lands were PAGENO="0267" FEDERAL OIL SHALE PROGRAM 263 nonmineral in character, and upon the further ground that the claims were not valid as of the date of the passage of the Miiieral Leasing Act, and yet, nc~t withstanding this fact, the Department of the Interior many years latter issued patents to these lands. I was concerned, especially in this case, by the fact that person who sold these lands to an oil company, the General Petroleum Corp., of Delaware, was able to sell some 5,000 acres of unpatented land for a considerable sum of money, and apparently the General Petroleum Corp. was sufficiently confident of the ultimate acquisition of the title that they paid a considerable amount of money for these claims. For the 24,000 acres, this patent applicant paid the Government of the United States some $61,500-$2.50 an acre-under the Mineral Leasing Act. These same lands were sold, actually an undivided interest in the same lands was sold, for a sum in excess of $1.5 million. If someone is entitled to a patent under the Mineral Leasing Act and is entitled to acquire the fee title to the land at $2.50 an acre and thereafter makes a profit, then that is something lawfully, properly, and reasonably done. But if there is any suggestion that the title to the patent ought not to have been released by the Government, then this is certainly an instance of a windfall profit which the Department ought to protect the public against. Senator Moss. May I interrupt you for just a moment? Mr. LYNCH. Yes, sir. Senator Moss. Are you talking about the Mineral Leasing Act or the mining law? I do not believe you can get a patent- Mr. LYNCH. If I said that, then it was said in error. I am talking under the mining law of 1872. You can get a patent under the mining law; you cannot get a patent under the Mineral Leasing Act. That is correct. So the first point I want to makes and this is about all that I would say as to this point, is that I think there ought to be a review of the procedures that are followed in the Department of the Interior in dealing with these valuable public resources. In the hearings of March 12, I think it was, or May 12, 1965, Under Secretary Carver clearly brought the power into focus, the tremendous power of the Department when he indicated that in a single lease of 5,120 acres you could have up to 18 billion barrels of oil equivalent. So the point that I am making is that, before the Department is entrusted, as really it is already, I think, by law, but since Secretary Udall is asking the guidance of the committee, I think the committee should recommend or request that there be a review of the procedures in the Department for dealing with these lands to prevent the kind of things that have happened in the past, and also to assure that all decisions which are made are made in the public interest. Now, in saying this, again I am not trying to cast aspersions on anybody's honesty and integrity, but certainly the procedures have left much to be desired. Specifically, I think someone should inquire of the Secretary why it was that, even though the Department was well-advised of this great spate of claims, no withdrawal orders were issued until after all the land, essentially all of the valuable land, in the center, the heart, of the Piceance Basin had been claimed. PAGENO="0268" 264 FEDERAL OIL ShALE PROGRAM I have r~ever heard any reason o~ered by the Department for th~ delay, and inasmuch as the Secretary himself cites these claims as an impediment to progress, I cannot help but wonder how it was that the Deparment, knowing that the situation existed, failed to act until the problem had become a serious one. Senator Moss. What was the date of the withdrawal order? Mr. LYNCH. January 27, 1967. And I say in my statement that this Mr. Sweifel alone, between 1966 and the date of the withdrawal order, filed claims covering some 340,000 acres in Garfield County. That is an approximate figure, simply counting the entries in the preemption book and multiplying by 160. But so far as I know from inspection, all of Ithe claims filed by Mr. Sweifel were 160-acre claims. The second point that I make, and this is in the form of a sugges- tion, to the committee, is that the Department of the Interior must im- mediately begin to contest these claims or some other device must be found by which the claims can promptly be declared null and void, if indeed they are, and the Secretary indicated, I suppose, in his statement this morning, there may be doubt as to the validity of some of them. Perhaps, some of them are valid, but, at any rate, some `disposition of this matter ought to be taken promptly, and unless action is taken. promptly we may have the same problems we have had with the pre-1920 claims where witnesses have disappeared, people have died, testimony `has become unavailable, and the like. I have suggested ,an approach to the com~ni ~tee which it may find helpful, and that i~ a legislative taking of these lands. Of course, the Constitution provides that we cannot take property without the payment of just compensation, but I am advised there are some prec- edents for either executive or legislative taking without condemna- tion proceedings, where provision is made for the filing of claims so that just compensation can be made. If this technique were avail- able it would have a considerable number of advantages over the in- stitutioi~ of contested proceedings which are nece~sari'ly lengthy. Primarily, the title question, the question of whether these lands will be made available for leasing or whatever other disposition that the Secretary or the Congress proposes ~o make, t)he title question would be solved immediately, and the other question to be then de- `termined is, What is the fair value, if any, of the claims which have been filed? 1 leave it to the `committee to consider the merits of this, if it has any merits. At any rate, it is a matter that has to be looked into. I would like to make a few other points. There has been testimony, of course, by representatives of oil companies, and I have no doubt that the oil companies who have been interested in the Piceance Basin area of Colorado and other areas where oil shale deposits are known to exist, would like to have a right to keep the process of extracting the kerogen from the shale stone, I have no doubt, if the process were developed and were sufficiently economically attractive, that we would develop an oil shale industry. I am concerned, however, that the Secretary, apparently, and the committee, at least in these current hearings and in other hearings which have gone before this, have not considered as an alternative to the leasing proposals or the inducement method of encouraging private PAGENO="0269" FEDERAL OIL SHALE PROGRAM 265 development that there might be some advantages in proceeding on a parallel system of FederaJ investment or public, or quasi-public invest- ment, which would at least supplement the efforts which are made by the private companies. Apparently, there is uniformity oniy on this point as to one thing; that if we are going to use nuclear explosives the Government will be permitted to supply the atom bomb. But I think that the basic research and the basic technology of oil shale development really dates back to the research efforts of the Bureau of Mines in Rifle, Cob., in which the Federal Government had invested some $15 million I think that, par- ticularly in relation to the conservation go~is, some Federal participa~ tion in the investigation of these resources and in the refinements of the technology should be encouraged. I have no doubt that the president of Union Oil Co. and other e~ecu- tives of other oil companies are sincere in saying to you they do not want to see pollution and the despoliation of the natural resources of the area. There is, nevertheless, a natural difference between the inter- est of a private company whose primary concern must be a fair return to the shareholders, and the people of the United States, who have to think in broader terms of the preservation of the environment. We have learned in some ways in recent years that the ecology of an area can be upset by even very slight things, and certainly, if the retort- ing and development of the oil shale resources are going to be under- taken primarily as suggested by the president of the Humble Oil Co., by the refinements and the methods developed originally by the Bureau of Mines, and refined further by Humble and the group at Anvil Points, then, notwithstanding what other pictures you have seen, there is going to have to be a great deal of intelligent work and hard thinking and a great deal of investing in techniques to prevent the despoliation of the country. The fact is that the slag, which is a byproduct or the end product, in a sense, of the retorting effort, cannot be redeposited in the holes from which it is taken, and if an oil shale industry of any magnitude is developed, there is going, to be a tremendous quantity of this waste product which is going to have to be somehow dealt with. I think in this area, particularly, some direct Federal participation or sox~e indirect Federal participation, perhaps in a quasi public corporation, would be highly desirable I believe, certainly, at least, that this committee ought to consider the advisability of that approach as dompared with the onesuggested to you by the Secretary. The last point that I would like to make is this: While I agree with what Senator Hansen said, that the sole consideration in the develop- ment of oil shale resources is not the amount of royalty moneys that is received by the Federal Government, as a citizen of Colorado, a State which, if an oil industry is developed, I could look forward to the `possibility that an oil shale industry would increase the tax base in the community and provide employment for a great many' people, and many other subsidiary `benefits could be envisioned. Given that fact as true, however, I thjnk that it is also true that we must consider the matter of the fairness of the return to the people, compared .to `the fairness of the return to the company. One of the things that concerns me and one of the things that concerned' Mr. PAGENO="0270" 266 FEDERAL OIL SHALE PROGRAM Cohen, who is a inembet of the Sec~etary's advisory group, in the consithration of oil shale, one of the things that concerned Kenneth Gaibraith and concerned Dr. Morris Garnsey, who appeared before the Antitrust and Monopoly Committee of the Committee on the Ju- diciary, is the possibility that the oil industry may, having gotten all the inducements that we can offer, not develop the oil shale resource as we hope it would be developed. I am not an economist and I am not prepared to submit evidence to the committee which is the intelligent way to make that judgment. I do suggest, however, that this is an endeavor which has been made by knowledgeable people whose opinions are respected, and whose ac- complishments are known, and before we make this approach, which precludes any alternative in this industry to encourage oil shale de- velopment, we ought to consider `at least the possibility that the ojl companies may not be presently disposed to make the kind of invest- ments that a technology in successful oil shale exploitation requires. Senator Hart has indicated, and I think properly, that in the de- velopment of a brandnew industry, as it were, it would be helpful if other corporate financial entities not presently engaged in the pro- duction of liquid petroleum would put their oar in the oil shale field as a means of encouraging competition, and the like. I think this monopoly aspect ought to be considered by this committee as well as by the Antitrust and Monopoly Committee, because, while the writ of the Antitrust and Monopoly Committee runs, in a sense, legiti- mately in this fleid, it is certainly in this committee and in the House Interior Committee that the basic legislative decisions are going to be made which will affect, for good or ill, the future of oil shale develop~ ment in this country. I thank you again, Senator Moss, and I thank Senator Jackson for the courtesy that he has shown in permitting me to testify today, and I thank the members of the committee for this opportunity to appear. Senator Moss. Thank you, Mr. Lynch. We are very glad to have you come and point in a little different direction from where the testimony had led us earlier, pointing to areas where, certainly, careful scrutiny must be exhibited and the matters must be considered by this committee. Senator Allott, do you have any questions or comments? Senator ALLo~r. Yes, I have one or two questions and coi~iments, Mr. Chairman. First of all, Mr. Lynch, I want to make it clear that you appeared here as a private individual. Mr. LYNCH. That is true; yes, sir. I have been interested as a pub- lic official in what happens to the resource, `but I do not appear in any sense as a representative of the university, nor express the opinion of the board of regents or any other members thereof. Sena'tor ALLOTT. Or of the department of natural resources of the State. Mr. LYNCH. That is true. Senator ALLOTT. Nor of the Governor. Mr. LYNCH. That is quite true. Senator ALLOTT. I must say th'at I am quite in sympathy with your * feeling about the dreadful situation `that we have gotten into, not PAGENO="0271" FEDERAL OIL SHALE PROGRA1\~t 267 only on the claims that you have mentioned and referred to specifically, but also upon the fact that we have made no progress, or substantially no progress, in the area of cleaning up all of the old claims under the laws prior to the Mineral Leasing Act of 1920. I just want to ask one thing about this matter of the Sweifel claims You mentioned these. It is my understanding that the limitation on a claim is this situation, that of 20 acres per person. However, you can associate eight persons together for the purpose of making one claim as large as 120 acres in a placer situation. Mr. LYNCH. I think it is 160 acres, sir. Senator ALLOTT. Did I say 120? Mr. LYNCH. Yes, sir. Senator ALLOTT. 160 acres. Did you run across the association of himself with others in this? Mr. LYNCH. Yes, sir. Each claim had eight locators. Senator ALLOTT. To apparenly legitimatize the filings which he made. Mr. LYNCH. Well now, I do not assert that all these filings are il- legitimate. I am not competent to do that. I will say this: An examination of the record indicates that, for example, on some days there would be 60 claims filed, on some days 100. It is inconceivable to me that you can locate and stake, and so forth, all those claims. Senator ALLOTT. Will you let me state my question over again. I have not seen these records, and I frankly did not know until today the extent of his filings. I just heard the name, that he had made some filings, and that is all. Did he associate others with him? Mr. LYNCH. Yes. In almost all of them. Senator ALLOTT. So that there is an apparent legality. Mr. LYNCH. Yes, that is correct. There are eight names on each claim and, of course, you only need one person to locate if the other persons are willing to cooperate in development of the claim. Senator ALLOTT. Now, in your prepared statement, you say: For this reason, I suggest this committee request that the Secretary refer the proposed leases to the committee for review before any binding decisions are made. Mr.LYWCH. Yes, sir. * SeuiLtor ALLOTT. We have several areas today where we are in very deep ~uarrel with the executive branch which alleges that this is an incursion into the executive prerogatives. This is true in the "Water- sheds Act" and in some other places. While we recognize the problem, I think if this committee took this course of action in this instance we would find ourselves in a stalemate with the executive branch. Mr. LYNCH. Well, I assume Secretary TJdall probably, as I under- stand the situation, could go ahead and make these issuances of leases without any legislation at any rate. He sought out the advice of Congress and said quite explicity this morning that he wants to make these decisions in the white heat of publicity. I was only hoping that the Congress might oblige. Senator ALLOTT. You would not think, for example, that there were people in the room this morning who had made application for and PAGENO="0272" 268 FEDERAL OIL SHALE' PROGRAM received exploration leases for minerals other than oil in this area which were given by Secretary lJdall 2 or 3 years ago-something like that. Do you think that we should take steps to cancel out thesepeople's valid leases-these people who subsequentiy~ because of rulings of the Secretary, or lack of ruling by the Secretary, or overfiled under the itiining law on the exploration leases they had? Do you think these people should be deprived of their effort and their enterprise in this respect? Mr. LYNCH. You are talking about leases, for example, for liquid oil and gas that exist in the area, sodium? Senator ALLOTT. No. I am talking about mineral leases. Mr. LYNCH. I am talking about the claims under the mining laws of 1872, not leases. Senator ALLOTT. Yes. They were prospecting permits, is what they were. Mr. LYNCn. You are talking about the sodium prospecting permits? Senator ALLOTT. Yes, dawsonite and nahcolite. Mr. LYNCH. It is not what I had in mind. I had in mind the claims filed in 1966 by Mr. Sweifel and others. You are saying that there are other overlapping claims or lease applications, or what are they? Senator ALLOTT. There were prospecting permits issued- Mr. LYNCH. Yes, sir. Senator ALLOTT (continuing). By the Secretary which, as far as I know were legitimate in every respect, and because of decisions and half decisions, and lack of decisions, by the Secretary, I think perhaps as late 1966, Some of these people filed mining claims on the very areas, the very lands on which they already had prospecting permits for. You do not think that these people should be deprived of their enterprise and the money they spend for the purpose of going about thi$ business of acquiring other minerals, do you? Mr. LYNCH. No. I am not trying to deprive anybody of what he is lawfully entitled to and, indeed, in the suggestion `I made, anybody would be able to recover what he was lawfully entitled to by way of just compensation. Senator ALLOTT. You have attended any of the oil shale symposiums in Colorado? Mr. LYNCH. Yes, sir. Senator ALLOTT. Were you present approximately 2 years ago when I told the oil shale symposium at the Denver-Hilton that in any event the cost of reforestation and so forth would have to be considered as a part of the cost of operations of an oil shale operation? `Mr. LYNCH. I was not, sir. `Senator ALLOT'r. Do you actually know of any company, Mr. Lynch, which is not considering `this and studying it in depth, I mean, any company which has evidenced an interest in this area, which is not considering and studying in depth the ways and means by which they can handle the waste situation and return it as near as possible to its natural environment? Mr. LYNCH. I am not advised of `the efforts that the companies ~re~making. I `did accompany the former Senator Douglas on a tour on~ the Western slope this summer. We stopped at the Anvil' Points PAGENO="0273" FEDERAL OIL SHALE PROGRAM 269 plant. We were received very courteously by the management and people who were. controlling the research and the management there- at, and they indicated to us that they had observed at the site of the pilot plants of the Department of Mines on their holdings, that the, I should say ash piles, if you want to call them that, after about three years appeared to support vegetation. I specifically asked whether they were doing any research in the conservation area and, as I understood the answer, they were not.. Their interest, and the thrust of their research, was in the effort to find various methods to extract the oil from the shale. The gentle~ man who was the project manager, who was very interesting and courteous but whose name I cannot recall-he worked for the Mobil Co.-one of the members of the group, indicated he believed that the problem could be solved with sufficient planning, but he did not mdi- cate that this was absorbing a particularly great amount of the energy and effort undertaken over there. Senator ALLOTT. There is no question about this: the purpose of the consortium at the Anvil Points plant is not in this area. The first purpose and primary purpose is to develop a viable method of retort- ing and extraction which would enalle them to compete. But in talking with these various people all through the years- and it has been years, not just a matter of the last year or two years- I have found them with a complete awareness that this problem has to be solved. Not all of it, not all of the ash, as you referred to it, can be put back in the ground, because it actually expands. But there is also the possi- bility that a portion of it can be; and, as the pictures show here, the Union process apparently has supported a very good vegetation after a period of several years there. I hope we can do this. Mr. LYNCH. I. am not trying to accuse anybody of wanting, nor of being unconcerned about these conservation problems, but I think you could probably fairly say that nobody wants to pollute the Potomac. Nobody was mean and vindictive and wanted to poison the fish, but somehow it got polluted, because not. enough attention was taken by any responsible agency that had jurisdiction over the whole Potomac River Basin. Each of the companies, each of the cities, along the banks functioned responsibly in the light of their own responsibility, but the end re- sult was unhappy, and I think we are going to live with it for a long time, until we can clear it up. So I was hoping that some Federal par- ticipation at least in this conservation area might prevent that kind of occurrence in the development of oil shale. Senator ALLOTP. Well, I do not mind that, hut I do not think that, except in an advisory way, it is necessary because the Secretary has full powers, under the present situation, before he grants a single lease to require as a condition precedent that this situation will be taken care of, and under such terms as he directs and that the parties agree on. I simply cannot conceive of this particular Secretary, who is so con- cerned with beauty, not doing this. Mr. LYNCH. I certainly hope you are right. I hope that all the suc- ceeding Secretaries are equally concerned. Senator AIWTT. That is all I have, Mr. Chairman. 76-821-6.7-iS PAGENO="0274" 270 FEDERAL OIL SHALE PROGRAM Senator Moss. Senator Hansen. Senator HANSEN. I would like to thank you for your statement, Mr. Lynch, and to say that I share your interest in higher education. I' was a member of the board of trustees of the University of Wyoming for some 17 years before I was elected Governor, and I know how deeply you feel about the needs and the requirements' of higher educa- tion. I think this demonstrates how we can have cOmmon concerns, and perhaps look at problems slightly differently. I do not mean to imply that we have any great rift in our interests, because I share yours in the desirability of keeping undespoiled, insofar as we possibly can, the area of the country in which these oil shales are situated. I share, too, your interest in being concerned with the problems of air and water pollution. These are very seri~us `problems. I think, perhaps, if there is any basic difference in our philosophies, it is the contribution that I think `a viable profitable industry can make and can add to a good educational program, as contrasted with what would result if that industry should not come into being. Perhaps, I am only guessing on this, you may view the problem slightly differently there, but I think our concern is to be certain that Government gives adequate encouragement and adequate recognition to the problems of the industry, so as to assure that it will become in- volved in this instead of in the tar sands in Canada, or some other place where an investment could be made that conceivably could be more profitable. You have made a good statement. Thank you, sir. Mr. LYNCH. Thank you, sir. Senator Moss. Thank you, Mr. Lynch, for your contribution to the record. We appreciate your pointing out to us some of the serious problems that remain to be clarified in this area with regard to mineral, locations and prospecting permits. Certainly, these must be clarified and titles established; otherwise, we cannot go ahead and expect a development in this oil shale area. We appreciate your testimony and your prepared statement will be printed in full at this point. (The statement referred to follows:) STATEMENT OF DANIEL F. LYNCH, REGENT OF THE UNIVERSITY OF COLORADO Mr. Chairmen, members of the Committee, it is a pleasure for me to appear before you to express my views concerning the leasing proposals relating to oil shale lands which' have been promulgated by the Secretary of the Interior, the Hon. Stewart L. Udall. It is particularly a pleasure as I have had the honor to be employed as a legislative assistant by a former member of this Committee, the Hon. John A. Carroll of Colorado. I appear beforb you as an interested private citizen who `has studied the problems involved in oil shale development. I appear also as an elected public official. I am a member of the Bo'ard of Regents of the University of `Colorado, whose members are chosen by the people in state-wide elections. While it is true that `my responsibilities as Regent do not directly invoWe the subject of oil shale, it is also true that `the ultimate disposition of public lands bearing oil shale within `the jurisdiction of the Department o'f the Interior and the Congress o'f the United States will profoundly affect the University and all public institutions within the State of Colorado. I need not remind this Committee `that under the laws a considerable portion of the revenues derived from royalties under the provisions of the Mineral Leasing Act is reserved to the states from which the mineral resources are extracted. It is, therefore, a matter of considerable interest to me, in both my private and public capacities, what the Congress and the Executive Branch do with the vast reserves of oil shale. PAGENO="0275" FEDERAL OIL SHALE PROGRAM 271 As Senator Allott told this Committee at the time of its hearings on May 12, 1965. ~~IIi Colorado alone, thO combined retources of oil shale underlying some 1,380 square miles is in excess of one trillion barrels~" As Secretray Udall said in the preface to his leasing proposals, "The richest ahales are believed to be in the Piceance Creek Basin ~f Colorado, where some 770,000 ~tcres contain 25-gallon- per-ton shale in thicknesses of 15 feet or more" Indeed, it has been said that in the Piceance Basin there are several sections of land In Which the imbedded reserves of oil shale are a~ thick as 2,000 feet! Thus, the people of Colora~do, together with their neighbors in Utah and Wyoming, where other reserves of known abutalance e~ist, bare a unique interest in the development of this resource. While there are many divergent views as to the best way to encourage such development, there is no doubt of one thing, the people in these states want to encourage prompt and effective exploitation of this resource. At the time of the hearings of May 12, 1965, then Under Secretary John A. Oarv~r told this Committee that a major problem in the formulation of policy couc~rning oil shale development lay in the adjudication of tjie validity, or in- validity, of unpatented pre-1920 mining claimh. The Chairman of this CommIttee, the Hon. Henry M. Jackson, advised me by letter received September 11, 1967, that the Committee "cannot hear arguments or views on the validity or invalidity of the oil shale mining claims." "This issue," he said, "properly is before the Courts." I shall, of course, observe this limitation and shall confine my remarks to the matter before the Committee. `the probable effect of Secretary Udall's pro- posed regulations on the development of the oil shale reserves in the publicly owned lands or the United States." Secretary Udall's proposed leasing regulations were formulated to implement a five point program announced January 27, 1967 which was intended to promote the recovery of oil shale and associated minerals from the Green River Formation. The first point of that program involved action to clear title to public oil shale landsin the area. This key point was not necessary because of the pre-1920 claims, the ones now before~tlie courts, but because of the filing of literally thousands of claims during the year 1966. On the same day on which the Secretary announced his five point program, he issued an order withdrawing the oil shale lands from further claims. ThiS action had been urged on the Secretary by persons within and without the Department. To my knowledge the withdrawal order bad been recommended as early as March, 1966. For whatever reasons, the order was not finally issued until January 27, 1967. As I am sure the Committee knows, these claims, unlike the pre-1920 claims, are not "oil shale claims". They were apparently based on the presence in the forma- tion of metals and other minerals presumably not covered by the Mineral Leasing Act of 1920. To gain some idea of the extent of these filings, I accompanied a former dis- tinguished member of the United States Senate, the lion. Paul H. Douglas, on a fact finding trip to the Western Slope of Colorado; Examination of the records located in the Clerk and Recorder's offices in Garfield and Rio Blanco counties verified what we had been told, that almost every square foot of ground hitherto unclaimed had been claimed in 1966. Between May 6, 1966 and the date upon which the Secretary issued the with- drawal, one man alone, Mr. Merle I. Zweifel of Shawnee, Oklahqma, filed over 2100 claims eoveri~g approximately 340,000 acres in Rio Blanco County! The intentions of Mr. Zweifel with regard to these claims are not obscure. In an interview with Bert Hanna, Deaver Post natural resources writer, Zweffel said: "The government, to tie up oil shale, has been trying to defeat the use of mining claims. There are other minerals interspersed with oil shale and I defy them (Interior Department offit~ialu) to even lease these lands unless they bring the whole thing into focus." Mr. Hanna's article, in which this quotation appeared, went on to say: "Secre- tary Ijdall, according to reliable reports, will soon declare the claims invalid and Lt then will be up to Zweifel and associates to estabish validity in Court." I fear it may not be as easy as suggested to decare the claims invalid. Unless patent applications are submitted "to bring the matter into focus", an unlikely possibility, the Secretary would have to initiate contest proceedings which might take years to resolve. PAGENO="0276" 272 FE~DEI~AL oit~ SHALE PROGRAM Under the Multiple Mineral Devel~pinent Act of 1954, mIning operations pur- ~uant to rights tinder any patentel or unpatented e~l~dms must "be condueted,. so~ ilar as reasonably practicable, in a m~inner which will avoid damage to any known de~osit of a Leasing Act mineraL" The problem is `that there may he no "practicable" manner in which the claim- ants can do this. Geological evidepce appears to indicate that the dawsonite and other minerals which form the basis of these claims is interspersed within the oil shale deposits and that there can be no exploitation of the one without a dis- turbance of the other. While this fact may prevent the claimants from disturbing the oil shale, it may also prevent the government from granting leases which would disregard the rights of the claimants to the other mineral substances. Mr.. Zweifel has clearly put the government on notice that this is his position. What- ever the legal merit of this position, it is another matter which could occupy the Courts for years to come to the detriment of prompt advancement in the develop- ment of oil shale technology. One tempting possibility might eliminate these problem's. Responsible applicants; for leases under the Secretary's proposed leasing policy could purchase the claims of Mr. Zweifel or other of the 1966 claimants, or they could enter into a çoopera- tive association with such persons In the submission of leasing proposals. The absence of the possibility of legal controversies which would attend such an appli- cation might make it more attractive to the Department than alternate propoals which would involve the pr~babili'ty of extensive litigation. Thus, these claims, which the Department apparently feels are largely invalid could form the basis of an unfair advantage in securing a lease. Since one of the announced purposes of the leasing proposals is to prevent speculation and windfall profits, this possibility ought to be prevented by prompt and effective action against the 1966 claims. Even more important, the primary purpose of the regulations is to foster improved oil shale technology, and the inclusion of such extraneous factors as the avoidance of litigation cannot but `blur the focus on this primary goal. Action to eliminate these 1966 claims a.s clouds upon the title to public lands must be `taken now! It must he taken in order to facilitate the Secretary's leasing proposals, if they are to be issued, but. even more important, because a failure to take such action. could result in `the loss of evidence, the death and departure of witnesses `and per- haps, in the ultimate grant of paten'ts.to claimants or their ultimate assignees in~ instances where such issuance is unjustified and could be prevented by promp't action. The action must be such as will permanently bar the claimants from further' consideration. This Committee is fully aware that in the past apparently final departmental action `has proved to be n~t final at all, and that claims long regarded as defunct have been revived to plague the Department, the Congress and the Courts and to delay the making of necessa~y decisions regarding the development of `oil shale. If a program is undertaken `by the Department to determine the validity of the new claims ~d to eli'minate those which are n'ot valid, it `is forseeable that it will cost a considerable sum. The effort would involve salaries of mining engi- neers to make field examinations of claims, the cost of assays, the cost of legal review, stenographic costs and the costs of bearing, including salarie's of court reporters, hearing examiners and other personnel. If the claimants are adequately financed, the costs will inevitably rise as appeals are taken. Assuming a cost in round figures of $300 `to $500 per claim, the possible costs of such a program could involve millions of dull~rs. The cost of service alone would be staggering' as compared to almost any other kind of litigation. And yet, unless something is `done, the Secretary's leasing proposals and the whole future of orderly oil shale development may be stalled. If it is true that me'talliferous substances forming the basis of the new claims are intermixed with the oil shale deposits, the new claimants, even on unpatented claims, will be in position to assert that they are full partners in the oil shale deposits with the~ United states, Pursuant to the Obairman"s instructions, I shall not venture an opinion on the validity or invalidity of these claims. Whether valid or not, how- ever, they constitute a. cloud until eliminated which may force the Department to delay development or to grant claimants a priority of consideration in leasing arrangements or to force responsible applicants into cooperative arrangements which they would not otherwise enter. I suggest that there is an alternative to contesting these claims, although if this suggested course is rejected, the claim's should be contested vigorously and PAGENO="0277" FED]~EAL OIL SHALE PROGRAM 27~3 at once. I recon~mend the legislative taking o~f these lands. That is that the Con- gress enact legislation divesting the claimants of their claims. I believe this could be cons'itutionally adeomplished if adequate arrangements for the payment of the just value of the claims were made. Certainly it cannot be contended that such a taking is unrelated to a valid public purpose, the orderly development of the oil shale resources of the United States. Such a legislative taking would have a number of advantages: It would eliminate the clouds on the title to the lands involved immediately. Even if the litigation as to the validity and value of the claims was thereafter protracted it would not occasion a delay in development. It would destroy the bargaining position of the claimants who have, at least in Mr. Zweifel's case, plainly stated their intention to produce a stalemate. As already indicated, such a stalemate could give decisive leverage to claimants even if the claims are invalid since their invalidity could be proved only after they have been given their day in court. If the only matter to be litigated is the value of the claim, if any, it is likely that the least promising claims will be abandoned by the claimants rather than incur the costs of litigation. It would be less expensive than government instituted contest proceedings. Since the destruction of the bargaining position of claimants would discourage prosecution of valueless claims, there would be fewer cases to be decided and proportionately fewer costs to pay. It would prevent any appreciation in the value of the claims. To contest the claims directly would involve inevitable delays. To take the lands by statute would involve one quick stroke preventing any appreciation in the values involved. I would suggest that the statute encompass all lands included in Executive Order No. 5327 of April 15, 1930. I would further suggest that the claimants be given six months from the effective date of the act in which to file claims for payment of just compensation. If the claimants have made valid discoveries and if they have complied with the mining laws in establishing their claims, it should not be difficult for them to submit the proof of these facts in that time. The claims might be appropriately filed in the Court of Claims, although it is possible that it has too few personnel and too little experience in such matters. If so, the claim- ants could present their claims to the Department of the Interior itself which surely has the experience and the personnel to process the claims. Appeals from adverse determinations of the Department could be taken to the Courts as is presently done. Unless some such action is promptly taken, I fear that the Secretary may not be able to locate 30.000 unclouded acres of public land to lease. Even if this much land is available at present, the choice of sites would be narrowly circumscribed unless remedial action to expunge the 1966 claims is taken. That such action is necessary because of the inexplicable delay of the Secre- tary to issue the withdrawal order is beyond dispute. I would hope that this Committee would inquire of the Secretary as to the reason for the delay. Such inquiries are not suggested for the purpose of affixing blame for what appears to be a lamentable lapse of vigilance, but rather to' assure the Congress and the American people that the Department's procedures are sufficiently thorough to protect the public interest. I confess to some misgiving with reference to the leasing proposals when I consider the lack of prompt and effective response to the greatest flood of placer mining claims in the history of the nation. Everyone interested in minerals in the areas affected knew of the filing of these 1966 claims while they were yet in progress. The Secretary ultimately confessed the propriety nf withdrawal by the issuance of the order. Yet, when finally issued, the with- drawal had the same effect as locking the barn door after the horse was stolen. In his testimony before this Committee on May 12, 1965, Undersecretary Carver properly pointed out: the oil shale leasing sections of the Mineral Leasing Act, section 241 of title 30 of the United States Code, leave enormous discretion to the Secre- tary of the Interior. He receives, in that act, no help from the Congress on the size of the lease, save that it must be lest than 5,120 acres. That much acreage potentially can be staggerfng in its reserves. . . . Forty acres on some of these beds . . . could run into the billions of barrels . . ." Page 33. At the same `hearing Senator Gaylord Nelson asked: "So under this leasing authority the Secretary in his discretion may lease to ofle lessee the equivalent of what would amount to 18 billion barrels of oil equivalent from the shale on a 5,120 acre plot? PAGENO="0278" 274 FEDERAL OIL SHALE PROGRAM Mr. Carver responded: "If the withdrawl order were to be lifted, and I think the Secretary has~ authority also to do that." Page 35. The present leasing proposals being considered by this Committee are promul- gated pursuant to that authority. Surely the people and the Congress wish to have confidence in the procedures and personnel of any Department to whom the power is given to dispose of so much of the national treasure of the United States. The acceptance or rejection of various proposals made pursuant to the pro- posed regulations will not be a simple matter of opening sealed bids. It will involve many subjects and technical judgments. It is not my purpose to cast doubt either on the integrity or capacity of the Department or on its ability to make these judgments in the public interest. It is my purpose to suggest that in important rniatters involving the public interest the department's procedures have not always been sufficiently guarded. For example, the Department issued patents on a tract involving considerable acreage although the same claims in the hands of the same applicant had been declared null and void on the ground of fraud in the location in earlier proceed- ings. Although the error was subsequently discovered and suit was brought to re- cover either title to the lands or restitution of the value thereof, the government recovered only a portion of the profit realized by the applicant. This was the Eaton case which was concluded by settlement in 1957. My own search of the county records in Garfield and Rio Blanco ceunties revealed a case in which the Department issued patents on claims which bad previously been declared null and void upon grounds other than~t'he erroneous ground of failure to perform assessment work. These lands, together with some others which were previously patented, were sold to a major oil company for in excess of 1.5 million dollars. For the same land the government had received~ approximately $61,500. I wish to emphasize that I am not expressing any opinion as the the validity or the invalidity of these claims. Two things about the case concerned me and, I think, properly relate to my concerns about the leasing proposals. One was that as to more than 5,000 of the acres sold, the patents were not issued until after the sale. It would appear that the ultimate purchaser had good grounds `to believe that they would be issued. Second, when I examined' the' file in the General Land Office, I was unable to find any reference to the fact that these claims had been previously denied patents. It is possible that such' evidence was contained in the abstract, which had been removed from the file and' was not available at the time I checked the records. One other thing should be noted in connection with this case. The sale price of $1.5 million or more, as above mentioned, was for an undivided one-half interest in the land! Theso appa'rent lapses of procedure cause concern in light of the tremend~us significance of departmental decisions involving billion's of barrels of the people's oil. In his testimony on May 12, 1965, Mr. Carver also told the Committee: "In other words, given what we kno'w `abou't oil shale as a resource trans- cending all other deposits of hydrocarbons now known on earth, it seems to me that a Secretary would want to keep the Oo'ngress closely apprised of everything he did in the field. These resources, after all, `belong to all the -people of the United States." Page 36 I wholly concur in that statement. I presume it remains the policy of Secretary Udall under whom Mr. Carver served. For this reason, I suggest this Committee request that the Secretary refer the proposed leases to the Committee for review before any binding decisions are made. Congress and the peop'le should know the facts concerning alternative pro- posals before commitments are made which would divest us of control of some of our most valuable public lands. At this time it is difficult `to speculate as to the probable effect of the Secretary's proposals. It is `apparent from a review of statements made in the press by r~pre- sentatives of oil companies that there is considerable concern about the proposed royalties and, more particularly, about the provisions relating to patent rights. If, as may be the case, the present proposed regulations' do not entice major invest- ment in research facilities as envisioned, the Committe should review the whole idea of private leasing as opposed to other approaches such as that envisioned by Dr. Morris Garnsey, a distinguished Professor of Economics at the University of Colorado. Dr. Garusey, in testimony before the Subcommittee on Anti-Trust and Monopoly of the Judiciary Oommittee, urged consideration of a public or ç~uasi- PAGENO="0279" FEDERAL OIL SHALE PROGRAM 275 public corporation which could begin immediate and extensive investments in the technology of oil shale development. Such a commitment of public resources would not necessarily envision the permanent domination of the oil shale industry by the government. Indeed, the first stages of the Secretary's leasing proposals envision an experimental rather than a commercial effort. The functions of such a quasi-public corporation could be limited to this phase. Its costs could be recov- ered from royalties received after commercial production was instituted by pri- vate lessees. Such a public oriented entity is ideally suited to undertake one important function of the proposed research, that of protection of the environ- ment. While the Secretary's proposed regulations quite laudably take this impor- tant matter into account, it seems to me that a public corporation would be more naturally concerned with, and place greater emphasis upon conservation values than a private concern which is quite properly preoccupied with returning a proper reward to the shareholders. The skies of our cities and the state of our rivers attests to this. Nobody is in favor of air or water pollution, nor does anyone aspire to upset the delicate ecological balance, but experience has proved that people and corporations do these things with little thought of the conse- quences until critical situations are presented. I am sure that private lessees would be concerned with these matters, particularly inasmuch as the regulations would make such an interest mandatory. For my part, however, the goal of min- imizing the possible adverse effects on the environment ~of large scale retorting operations is a goal of the highest priority. Much as I desire the prompt develop- ment of this important resource, I would not suffer such development at the expense of turning northwestern Colorado into an ash pit. A corporation naturally attuned to such a goal may be more effective than a corporation required by regulations to demonstrate some concern. If the proposed regulations of the Secretary of the Interior are to be modified before leasing proposals are accepted, the modifications should be brought to the attention of this Committee. If the protective measures which have been made a part of the proposed regulations are substantially weakened to the detriment of the public interest, the Committee should consider not only the proposed regu- lations as amended, but also alternate proposals such as Dr. Garnsey's. Another aspect of the Garnsey proposal, as it contrasts with the leasing regu- lations promulgated by the Secretary, which deserves the Committee's considera- tion, is his claim that such a quasi-public or public entity would be more likely to insure the speedy advance of the art of oil shale retorting and refinement. Many economists, Dr. Garnsey included, have expressed the concern that private oil companies may not want immediate development of oil shale resources. As a non-economist, I am not qualified to speak to that subject. But it seems the ad- vantages of such an approach as Garnsey suggested, together with thoughtful consideration of the dangers of foot dragging effort's, ought to be considered before the acceptance of regulations which do not appear to make satisfactory progress an essential requirement of a lease. In summary, I wish to suggest: 1) That the first priority in approaching the Secretary's leasing proposals is to clear the titles clouded by the claims filed in 1966; 2) The best method of promptly accomplishing this is a legislative taking coupled with fair and adequate provisions concerning payment of just com- pensation for the claims; 3) The procedudes and the past practices of the Department of the Interior should be reviewed to ensure the maximum safety and the greatest application of competent deliberation in decisions regarding oil shale matters; 4) Any changes in the proposed leasing regulations, and any specific applica- tions, should be reviewed publicly by this Committee before final action is taken. 5) If the regulations are substantially modified by the elimination of require- ments designed to protect the public interest, the feasability of alternate meth- ods of insuring oil shale development should be considered together with the final leasing regulations. I appreciate the opportunity of expressing my views and thank the Committee for having heard me. Senator Moss. The hearing will now be recessed until 9:30 tomorrow morning. (Whereupon, at 5 :15 p.m., the committee recessed, to reconvene at 9:30 a.m., on Friday, September 15, 1967.) PAGENO="0280" PAGENO="0281" FEDERAL OIL SHALE PROGRAM FRIDAY, SEPTEMBER 15, 1967 U.S. SENATE, C0MMImE ON INTERIOR AND INSULAR AFFAIRS, Washington, D.C. The committee met, pursuant to recess, at 9:30 a.m., in room 3110, New Senate Office Building, Senator Frank E. Moss presiding. Present: Senators Moss, Jackson, Allott, Fannin, and Hansen. Also present: Jerry T. Verkler, staff director; Stewart French,, chief counsel; William J. Van Ness, special assistant; and E. Lewis Reid, minority counsel. Senator Moss (presiding). The committee will come to order. We have some very interesting witnesses to hear today and a lot of ground to cover; so, we will begin without any further delay. At the beginning, I want to insert into the record the interim report that was made by the Advisory Board on Oil Shale to the Secretary of the Interior which, I have discovered, has not been placed in this hearing record. In order to make it a more complete document and to understand more fully the problems we are discussing, I think that the interim report should be placed in the record. In addition to that, I would like to place in the record an article that was prepared by H. Byron Mock, a member of that Advisory Board,, who is an attorney. This article appeared in the Denver Law Review and discusses the way this matter was considered by the Advisory Board and gives some enlightenment and background, and the reasons for the various views that were expressed. As is generally known, the Board was far from being unanimous in its recommendations, and this, it seems to me, is explanatory and h~lp.. ful in that regard. With these in the hearing record, it will be more complete and useful to the committee and any others who study the record. In addition, I have a letter that has been sent to the chairman of the Committee on Interior and Insular Affairs by Senator Proxmire, which is an expression of opinion and a comment on the matter before the committee which will also be made a part of the record. (The data referred to follows:) INTERIM REPORT OF THE OIL SHALE ADVISORY BOARD TO THE SECRETARY OF THE INTERIoR, FEDRUARY 1, 1965 L INTRQDUCTION On lune 30, 1904, Interior Secretary Udall announced the appointment of an Oil Shale Advisory Board to analyze the problems associated with develop~ ment of oil shale deposits on Federally owned lands. In establishing this Boardr the Secretary pointed ~ut that "If the national interest is to be served, and this 277 PAGENO="0282" 278 FEDERAL OIL SHALE PROGRAM resource is to make an optimum long-term contribution to the economic well- being of the Nation, the major pubic policy questions need to be identified and evaluated at the onset." This report contains the Board's recommendations on the Federally owned oil shale deposits. hi July 1964 the Board held its first meeting in Washington, D.C. at which the Secretary indicated the general nature of the problems and the Board's assignment. Representatives of the Geological Survey described the tremendous oil shale deposits of Colorado, Utah, and Wyoming, and staff members of the Bureau of Mines summarized the Research related to oil shale which has been done. The second meeting took place in Colorado oil shale country in September 1964, and gave the Board members a chance to see the locality and its special con- ditions. In the latter part of November 1964 the third meeting was held in Washington, D.C., with interviews of selected representatives from industries, professional societies and other interested groups. The fourth and final meeting was held in January 1965. In line with the Secretary's instructions the Board has dealt only with a selected number of problems and opportunities for oil shale development and conservation. It has endeavored to develop general recommendations on the critical issues, rather than to present a detailed treatment of all aspects of oil shale problems. On most of the points covered in the following report the Board found sub- stantial agreement. For the most part disagreements occurred in the section on Means of stimniating ~fevelopinent of oil shale. Individual statements relating primarily but not exclusively to this section are presented in the last section of the report. In a very few instances differences of views of individual members have been noted in brief footnotes. The Board members are Joseph L. Fisher, Chairman; Orb B. Childs, Benjamin V. Cohen, John Kenneth Gaibraith, H. Byron Mock and Milo Perkins. II. BACKGROUND INFORMATION The salient facts concerning oil shale development that must be taken into account by Federal oil shale policy are summarized briefly here.' The so-called oil shale deposits in Colorado, Utah, and Wyoming are actually marls containing an organic substance called kerogen from which oil can be derived. These deposits underlie a total area of about 16,000 square miles and represent th~ largest known concentration of hydrocarbons in the world. Shale yielding 25 gallons or more of oil per ton contains about 600 billion barrels of oil equivalent, and shale yielding 10 gallons or more per ton contains about 2,000 billion barrels of oil equivalent-an amount about 25 times the total oil produced in this country through all of its history. These resources are not uni- formly distributed. About 75 percent of the known deposits are In the Piceance Basin of northwestern Colorado, and in that area the oil shale ranges from less than 15 feet in thickness along the margins of the basin to more than 2,000 feet in the center. An area in the heart of the basin of about 350 square miles con- tains some 600 billion barrels of oil equivalent, and in parts of this area a single 5,120-acre plot-the size of the lease presently provided by the leasing laws- contains as much as 18 billion barrels, an amount equal to nearly 60 percent of the Nation's proved reserves of petroleum. The oil shale deposits are also not uniformly distributed vertically; high-grade and low-grade deposits are locally interbedded, and in the Piceance Basin the richest beds are in two sep- arate zones, a lower one and an upper one called the Mahogany zone. The regional and local variations in the thickness and character of the oil shale require ex- tensive exploration prior to the development, all of which has by no means been completed; even so, compared with many other kinds of mineral deposits, in- cluding petroleum, the deposits require far less exploration to determine grade, thickness, and reserves. Many of the oil-shale lands also contain oil and natural gas, sodium minerals, and ground water. Water-essential for sale oil refining, for the communities that would support the oil shale industry, and for many other existing or po- tential enterprises-is in short supply, and must be used wisely. The land surface itself through agriculture, grazing, wildlife and recreation is also of considerable `Factual material in this section was furnished to the Board by the Department of the Interior, PAGENO="0283" FEDERAL OIL SHALE PROGRAM 279 value. Plans for mining and processing oil shale must aim not only at high recovery of the shale oil, but must take account of other resources and of the atmosphere as well, and work to preserve or restore their value. Because of the existence of many unpatented mining claims, dating from be- fore 1920, the title to some of the oil shale land is clouded. Aside from this land, the Federal government owns albout 72 percent of the total oil shale acreage (78 percent in Colorado), and 79 percent of the estimated shale oil in place (82 percent in Colorado) ; depending on the resolution of clouded titles, Federal holdings may be a few percent larger in both acreage and oil. Even so, privately owned lands in Colorado contain 150-200 billion barrels of oil equivalent and known oil company holdings of 168,000 acres contain 31 billion barrels. Most of the privately-owned lands are either near the margins of the basin or along valleys where the oil shale crops out. Individual tracts lie in many different geo- logic and topographic environments and some of them may not be of a size or shape amenable to economic exploitation. Not all major oil companies or other parties interested in oil shale development own oil shale land, but recent sales indicate that private lands can be purchased for a few cents a barrel of oil equivalent in place. This low price per barrel is evident of the high cost of extracting and processing the material. Oil shale is being mined and processed on a relatively small scale in a few foreign countries, and processes for retorting Colorado shale have been devel- oped and carried to pilot-plant stage by the Bureau of Mines and the Union Oil Company of California. In the absence of full-scale development, production costs are not known but it appears that at best oil shale would be only marginally competitive with the petroleum industry today. For this, reason and because capi- tal costs are high and other sources of petroleum are now plentiful no commer- cial operations have been brought to fruition. There is much evidence, however, of growing interest in oil shale in private industry, and there is widespread belief that technologic advance will bring production costs within competitive range. Eight companies have presently joined to support research at the Bureau of Mines installation at Anvil Points, Colo- rado; other companies are also undertaking technologic research; and the Federal government itself is continuing research that bears on oil shale technology. In spite of the fact that the art of recovering shale oil is an old one, it seems to be still in its infancy, and many promising new approaches remain to be explored. The in-situ process, for example, under which oil would be formed and thermally driven from fractured ground without mining and without much, if any, effect on the land surface, is an especially promising process for recover- ing oil from the thicker and deeper parts of the basin. Considerable advance may be expected in oil shale technology. It should be noted, however, that several years lead time is required to develop a new industry after process development, so that even if technology were to advance rapidly it might be a decade before substantial production could be obtained. Other factors besides the direct cost of production will also play a part in deter- mining the point at which shale oil becomes competitive. The cost of conservation measures and the extent to which they must be directly borne by the industry, the `availability and cost of oil and gas from other sources, and import and tax regu-~ lations all will help determine the price at which shale oil can be m'arketecl profitably. Of these, the most critical is the cost of oil from other sources. Because oil shale can be made to yield either oil or gas, its place in the future energy mix depends on the extent to which it can compete economically with other sources of oil or gas. These include (1) undiscovered reservoirs of both oil and gas that may be found on further exploration; (2) oil remaining in known fields recoverable by secondary processes; (3) oil from foreign sources; (4) oil in tar sands and other bituminous rocks, particularly in Canada but also in the United States; and (5) oil and gas derived from the conversion of coal and other carbonaceous rocks. Each of these sources Is potentially large, and the possibility of significantly enlarging production from them is being actively pressed by private industry. Because of the availability of alternate sources of oil and gas, the case for oil shale development for the next few decades rests primarily on the economic bene- fit that would result if this large new source were to become available at com- petitive costs. That benefit however might be substantial, and significant other benefits might stem also from the increased geographic and physical diversity of energy sources. PAGENO="0284" 280 FEDERAL OIL SHALE PROGRAM IlL BASIC POLIOrY OBJEOTTVE5 In spite of the extensive information already available on many aspects of oil shale and oil shale technology, the Board is impressed with the need for better knowledge abou.t all aspects of oil shale, notably the processes and costs of de- veloping it, and the hazards oil shale development may pose to other resources and human values. For these reasons, the Board is sensitive to the danger of pre- mature commitment to a course that may later prove unwise. In fact, more im- portant than any recommendation it might make as to specific courses of action is its overall recommendation that the government proceed cautiously toward de- velopment and maintain flexibility until the ~il shale problems are better under- stood. In its analysis of the oil shale policy question, the Board ha~ narrowed the range of alternatives to a relatively small field. It agrees that oil shale develop- ment is not urgent to provide domestic supplies of liquid fuel for the immediate future, but it recognizes that at least several years lead-time will be required for the development of an oil shale industry. The Board agrees that oil shale develop~ ment would not likely have a disruptive influence on the existing oil industry in the foreseeable future; moreover, it believes that orderly development of a competitive oil shale industry would provide future sources of oil of much bene- fit to the country. The Board agrees that, whenever they may be leased, Federal oil shale lands should yield to the government a fair return for their value, that they should not be held for speculative purposes, and that development must take place only with full regard to conservation of other natural resources and human health. It also recognizes that the Federal government is going to have to play a major role in supporting research in conservation and health, particularly research necessary to develop conservation and health standards. In short, the Board agrees that the Federal government, working in appropriate cooperation with the States, should move positively but cautiousl~y to encourage private oil shale develop- ment, with full protection of the public interest in the broadest sense, and that it must expect to provide some of the support, directly or indirectly, of the research required.~ Guided by these considerations, the Board suggests the following objectives of Federal oil shale policy: (1) To encourage advancement of the technology of shale oil extraction and the development of a competive shale oil industry. (2) To encourage wide industry competition and initiative in the de. veloprnent of techniques of mining and recovery.8 (3) To establish conservation goals and standards for the recovery of the oil shale resource for the protection of other values in and adjacent to oil shale lands, and for the protection of public health and related values. (4) To prevent speculative use of leased F~deral lands to the detriment oil shale development. (5) To provide for reasonable revenues to the Federal and State govern- ments from the use of Federal shale lands. (6) To set up whatever Federal program may be decided upon in such a way that it can be administered effectively. Iv. MEANS OF STIMULATING OIL SHALE DEVELOPMENT The means considered by the Board for achieving these objectives may be outlined in terms of three alternative courses. (1) For the present and until the processes and costs of shale oil produc- tion, and hence the true value of oil shale land, are better known, the F~d- eral government, in addition to continuing its regular research activities, should actively support research directly or through contracts with private organizations. Such a course would not only help to advance the state of ~ terms "research," "experimentation," and "development" are sometimes confused since they tend to overlap in actual situations. Mr. Childs would call attention to the need for clear definition of these terms In the initiation of lease terms and development requirements. 8 Mr. Gaibraith,, would add "but only after government contract research has proved ~ dissent on this subject ~ee hi~ statement in the final section of the report. PAGENO="0285" FEDERAL OIL SHALE PROGRAM 281 the art and develop knowledge that would serve as the basis for developing wise conservation standards and practices, but would provide a basis for determining the fair market value of oil shale leases and for developing fair and practical leasing regulations before any ground is leased. (2) The Federal government should open for private leasing upon appli- cation or on government's own initiative a few commercial-size tracts on competitive bidding, with firm performance requirements that would make it impossible for a company to hold the land indefinitely without developing it. Lease terms would provide for a Research stage for those companies not yet ready for full scale development, with performance measured in dollar outlay. By offering a small selection of nominated lands in increments (much as is done now in the case of the off-shore lands in the Gulf of Mexico), land values and conservation hazards would become known as the industry grows. This approach aims to rely principally4 on private initiative as a means for proceeding with needed research and the development of an oil shale industry. (3) In addition to these alternatives, there is another that combines ele- ments of both the others. Small tracts could be offered now for R & D; if the results show that commercial production is viable in the light of both economic and conservation requirements, commercial leases would follow. Such a course would foster both private initiative and research and would not prematurely release or commit any substantial part of the Federal holdings. There are other possible courses of action, mainly combinations of those outlined above. For example, Federally sponsored research could be under- taken simultaneously with II & 1) leasing if the response to the R & P lease invitation were either limited in number or narrow in scope.4 But the alter- natives described constitute the fundamental mechanisms of stimulating de- velopment considered by the Board. Each of these three alternative means of stimulating development is con- sistent with the basic policy objectives set forth earlier. Each calls for an orderly approach to the release of Federal holdings and none envisions the release of more than a small fraction of Federal laud until much more is known about production costs, conservation, and related problems. Individual Board members have not found agreement as to the merits of each course. Individual views are presented in the last section of the report. v. CONSERVATION In proceeding with the orderly development of an oil shale industry, considera- tion must be given to other values, including natural beauty, that may be reduced or destroyed by development. At the same time, consideration must also be given to the opportunities presented by development for creating pleasant and attractive communities and for improving the beauty and productivity of the countryside by reclamation programs on mined-out land. The importance of such considerations is rendered acute by the wide variety of conservation and re- lated problems that may attend to the growth of an oil shale industry. Amon.g these problems are water and air pollution; wind and water erosion; damage to vegetation, wildlife, and landscape; and waste of oil shale and other mineral resources, the recovery of which would be rendered costly by incomplete mining procedures. Some of these problems lie wholly within the area of responsibility of the individual operator, but others may be beyond his control and require State or Federal attention. Conservation measures made necessary by development should to the extent feasible he regarded as a part of the cost of production to be met by the develop- ing firm. This responsibility should be recognized as such in the lease terms, Here again, the Department should seek lease provisions that will encourage the operator to meet high statidards in all aspects of the conservation and pol- lution field. A schedule of charges levied on firms and scaled to the amount of nonpermissible damage they cause to the natural environmeilt and to persons and property should be considered as one means of dealing with certain aspects For Mr. Perkins' dissent on this subject see his statement in the final eeetioa of ihe report. PAGENO="0286" 282 FEDERAL OIL SHALE PROGRAM of the problem such as water and air pollution. Consideration should also be given to allowing credit for improvement work beyond simple restoration. The Board may expect industry to accept an important share of the respon- sibility for conservation measures required as a direct and local consequence of operations, and beyond this to undertake research on methods that will lower the~ aLo~ s~wh- measures.. But the Government itself should also undertake re- search on coproduct recovery, waste disposal, the conversion of spent shale to soil, and similar problems, in an effort to swing the economic balance in favor of sound conservation practices. Even more important, government must. undertake, or cause to be undertaken, the research necessary to establish Federal and State standards to be met and maintained by the operator, particularly in the area of air and water pollution and in treatment of the landscape. CIos& down procedures and use of mined-out lands should be considered so as to assure an orderly disengagement from oil shale operations when that time comes. VI. DISPOSITION OF LEASE REVENUES Under the provisions of the existing Mineral Leasing Acf, 37.5 percent of the revenues from oil, shale leases are allocated to the State, 52.5 percent to the Reclamation Fund, and 10 percent to General Receipts (in Alaska 90 percent goes to the State). Revenues from the off-shore oil in the Gulf of Mexico ge into the Federal treasury. The question of bow revenues from oil shale leases should be allocated has not been considered in detail; it raises many basis issues of public finance that go beyond the purview of the Board. It may be useful in future consideration of the problem, however, to call at- tention to the fact that oil shale is a contributor to regional income and em- ployment as well as a national resource, and that the benefits of its development will accrue to both the oil shale States and the Nation. Similarly, the attending costs stemming from a wide variety of direct and peripheral effects of oil shale development will have to be borne in some measure by the State and Federal government. Whether or not these expenses are provided for wholly or in part from lease revenues, they must be accepted as part of the public responsibility in oil shale development. In consideration of these facts, there is much to be said for a departure from traditional allocation of revenues in the direction of a simple split between the States involved and the Federal government, with the expectation that each would use these revenues, or their equivalent, primarily to prevent or abate any public damages resulting from the oil shale development, to promote general resource conservation, and perhaps to further public education at the diecretion of the legislative bodies. The Board recommends that the Department review the allocation of lease revenues and related matters along lines suggested here. VII. FISDERALLY SPON5OEED RESEARCH While in general the Board would expect industry to conduct the research leading to and involved in commercial operation, there are problem areas in which the Federal government must see that the necessary research is under-- taken either through contracts with private industry, universities, or research institutes, or by conducting the studies itself. One of these areas involves the establishment of the conservation goals and standards discussed above. The Gov- ernment should also spotisor research on those scientific and technologic prob- lems that are of such long-range importance or are of so broad a scope that they are beyond the reach of private industry.4 As a landlord leasing its holdings, the Federal government must also acquire better knowledge of the origin, distribution,. thickness, and quality of the oil shale and of other resources that occur in the shale areas, and to bring the oil shale knowledge of Wyoming and Utah deposits up to that of present knowledge of Colorado deposits. In addition to scientific and technical studies, the Federal government should do economic research, or induce others to do it, on cost trends. future markets, general labor and capital requirements, locational problems, transport, and the like. Longer range projections of demand for shale oil, all oil, and competing. fuels, as well as projections of alternative supply sources and probable costs~ could be prepared by the government as a kind of framework of trends and For Mr. Perkins' disseut on this subject see his statement in the final section of the report. PAGENO="0287" FEDERAL OIL SHALE PROGRAM 283 possibilities for use of policy makers in both industry and government. Special attention to problems of meeting water requirements of shale operations and surrounding communities would be highly desirable, whether from surface or underground sources. Progress in the development of oil shale is likely to be hastened if there is competition between several sources of fluid energy. It is in the public interest to advance the technology not only for oil shale but for competing sources also. What is called for is a diversified research and development effort by hoth government and private industry, with the several energy sources viewed as part of an inter-related energy industry.4 The temptation to go overboard for a particular energy source or technique at the expense of other equally good or even better ones should be resisted. Such result can arise as much from lack of encouraging the development of one particular energy source as from encourag- ing another. improvements of R & D programming within the Department would be desirable.4 As noted earlier, economic research should form an important and integral part of the Department's energy research. VIII. TAX AND IMPORT POLICY In addition to leasing regulations, other policies and regulations associated with taxation, imports, and other fields will affect the oil shale industry.5 As with the question of the disposition of revenues, many of these regulations are a part of broad public policy beyond the scope of the Board. For this reason, the Board has not studied these questions in detail, and it makes no specific recommenda- tions concerning them, Any alteration in either the deplation allowance or the oil import quota would have considerable impact on oil shale development, as of course it would on con- ventional oil and other energy commodities. However, a distinction can be drawn between these two policy issues on the basis of the degree of uncertainty that needs be associated with them, in the case of quotas, periodic readjustment of the permissible level of imports in light of changes in domestic and international conditions is unavoidable. But in the case of the depletion allowance, a level and structure once determined would presumably remain in effect for an extended period of time. The Board understands that the Internal Revenue Service has indicated in an informal ruling that the depletion allowance would be 15%, cal- culaited on the value of crushed, not retorted, shale. Any one of a variety of posi- tions on the depletion allowance could be taken, ranging from treatment similar to crude oil to no allowance at all. The Board takes no position on the appro- priate level and point of application of the depletion allowance. However, in view of indications that production costs are now low enough so that shifts in depletion allowance practice could carry oil shale production across the com- petitive threshold, it does urge that a final decision about these matters be made in the near future.° Beyond urging that this element of uncertainty in the depletion allowance be eliminated, the Board views the matters of taxation and imports as so far reaching in their significance to the industries and markets for energy products, and to the regional and national economies, that this examination of oil shale development should not include recommendations regarding them, at least not without considerable further study. In the long run, the soundest approach to the development of a viable shale oil industry is to stimulate such development by advancing technology, and in other ways increasing the efficiency of shale oil extraction. IX. CLOUDED CLAIM TITLES The Board has not undertaken to examine carefully the contested oil shale claims, since this matter is now in the courts. However, the Board is convinced that uncertainty as to ownership of these claims could reduce the incentive for For Mr. Perkins' dissent on this subject see his statement in the final section of the report. ~ Mr. Galbraith makes the following comment. There are no appreciable costs for dis- covery of oil shale. As noted in the report, the location and quality of reserves are largely known. When the development is on government land, it is obvious no privately owned wealth is being depleted. In the absence of discovery costs and assuming that private firms need not be compensated for the depletion of public property, there is no conceivable jus- tification for a depletion allowance apart from the fact that the recipients, like all citizens, would enjoy the exemption from taxes. 6 For Mr. Childs' views on depletion allowance and exploratory costs see his statement In the last section of this report. PAGENO="0288" 284 FEDERAL OIL SHALE PROGRAM private action, and thus delay development of the resource. Prompt resolution of the contested titles would be most desirable. Such resolution is not seen, how- ever, as a necessary precondition to more active research and development work. X. INDIVIDUAL STATEMENTS The following are individual statements of the Board members: VIEws or OnLo E. CrnLps MEANS OF STIMULATING OIL SHALE DJtVELOP1\IENT In the report of the Oil Shale Advisory Board, three alternative courses are outlined as guidelines for the Department of the Interior in action to be taken to encourage the development of shale oil industry. As indicated by Secretary Udall at the start of Board deliberations ". . `the major ~u'blic policy questions need to be identified and evaluated at the onset." `Clearly the most basic policy question is "Will public lands be made available by lease arrangements to allow a shale oil industry to be spawned, developed, and carried forward by private enterprise in the American mineral resource tradition?" To the writer, a positive position on `this question seems to be the development of the stroligest possible policy to insure economic and efficient development and use of one of our nation's greatest untapped fuel resources. Too much government intervention in `the form of tight regulations or threat of production competition can only retard or elimi- nate the interest of private capital, thus leaving government alone to invent an industry and control and economy into which it must fit that industty. In the stimulation of shale oil development beyond that now under way, alter- native number (3) as stated could only be considered as a very small enlarge- ment o'f the present opportunity to do research. At present, eight oil compahieS are pursuing shaie oil research under a permit contract with Interior, using facilities under lease to the Colorado School of Mines Research Foundation, Inc. Any other `company as it `deems advisable can enter into other research arrange- ments to do work at Anvil Points. The interest already shown can only be expected to decline if a policy of making public oil shale lands available iS Itot soon adopted and announced. Surely `the announcement o'f research leases alone, without the promise of available commercial holdings, could not be expected to function as a stimulant. It could hardly be afi appetite appeaser. Alternative number (2) as described in the report, or a comparable policy that might be announced by the Secretary in the near future, would, in the opinion of the writer, create the greatest ~timulus to shale oil development, The lack of announced government policy as it affects three basic Ø~oblem,s has caused the reticence with w'hich many companies view the imponderable eco- nomic aspects of a new shale oil industry. It is hoped that the first problem, that of depletion allowance both as to amount and point of application, might soon be solved under the full realization of economic impact on the industry. The second' problem, the conditions of availability of public lands would ap- proach solution with conditiOns as outlined in alternative (2). Some compa~iies have gone `ahead with research to determine processes for developing private holdings, others h'ave worked in anticipation of favorable pOlicies t~ be devel- oped. Certainly all must be able to foresee' every possible economic aspect of an emerging industry before it is possible to face the enormous initial costs of commercial scale development. The third problem, the need for research, is also tied to the conditions under which public land is to be made available. We must not think that all process research can be restricted to a preliminary phase of oil shale development. Be- cause of many unknowns, once basic processes are decided upon, research must go hand in hand with daily production. Differences in maristone composition, in sedimentary structures within the rock, and sulphur content together with other impurities may require vast changes in process planning from day to day. Research and production costs are part of the development of the natural re- source. Production requirements within a lease should recognize all these ex- penditures as true effort toward resource development. When recognized, this work is a safeguard against speculative land holding. The determining 1!actor that will allow a shale oil industry is the energy eco- nomic climate. In ~order to assess the true competitive position of shale oil, as many costs as possible must be entered into the operational equatjon. The size PAGENO="0289" FEDERAL OIL SHALE PROGRAM 285 of capital investment is enormous, and long-range planning is mandatory. Im~ mediate availability of selected lands must be established within the frame- work of a policy that will assure future availability as required by a healthy industry. This is the objective of alternative (2) and the strongest stimulation of an emerging industry would be achieved by such a policy. DEPLETION ALLOWANCE AND EXPLORATORY COSTS When a lease is given the lessee becomes the owner of the asset he has leased. The public interest is served by the bonuses and royalties paid for the lease. It is a cardinal principal of our tax law that the tax fall only on income and not on the capital that produces the income. Historically and traditionally the de- pluthm allowance has been aimed at providing for the return, to the owner, of the value of the capital asset that is used and not replenished as it is pro- duced and sold. In an oil shale industry this depletion concept must be taken into consideration along with exceptional and unusual costs of exploration and development. Geological information that exists about present oil shale deposits is generalized at best. Specific details require close spaced core drilling, costly process research, and plant construction all tailored to the proberns of a par- ticular lease-hold. This investment must ie added to the cost of land-lease acquisition. All this investment may be considered as "exploratory costs" that would be abandoned at any time upon the decision to cease activity. If activity continues the mining and retorting plant with a capacity of 50,000 barrels of oil per day must be built at an approximate cost of $100,000,000 before the first return on investment can be achieved. VIEWS OF JOSEPH L. FISHER The general object of government policy, as noted in the main body of the report, should be to offer encouragement to private industry in the development of the oil shale resource with full and proper protection of the public interest. In the matter of precisely how to stimulate the development of oil shale (see Section IV) there are differences of view among the Board members, although all agree on the general developmental objective. These differences, I believe, are due largely to a lack of sufficient knowledge as to the technical and economic merits of various mining and processing methods. My preference is for a course which would emphasize research and experimentation as the next phase in the creation of a competitive oil shale industry. This could be achieved in two ways: (1) by providing access to Federal oil shale land, with public interest safeguards, for purposes of research and experi- mentation on any and all phases of sha]e oil technology, in the hope that this would stimulate interest in pursuing such research; and (2) by government contracting with private industry, universities, foundations, etc., for specific lines of research, or if necessary conducting research itself. I would not want to exclude either of the two avenues. Whichever course is followed, or if both are followed, I would hope that qualified companies and perhaps groups of coin- panies would want to undertake the actual doing of the research preparatory to development of an oil shale industry. Leasing for purposes of stimulating research and closely related development (not including commercial scale development) has the advantage that it relies more on private initiative and may make for an easier transition to commercial leasing, once this is warranted. At the same time, such leases, which would actually be more in the nature of permits, should be sufficiently qualified so as to prevent land speculation (see below). Finally, and quite importantly, providing access to Federal land might encourage companies not now owning any suitable land, to engage in research and development of the various phases of extracting and processing the material. As against these merits of leasing or permits, there is the undeniable fact that in the past industry as a whole has not been especially aggressive in its H & D activities regarding shale oil; this despite the fact that more than 160,000 acres of oil shale land are owned by oil companies. It is possible, therefore, that research permits will not quicken the pace of progress Therefore, government, both Federal and State, should be ready to play a more active role in sponsoring or conducting research if it becomes evident that the leasing route does not elicit a satisfactory response. Most of the research, in this case, could probably be arranged through contract with private companies, but some might also be done directly. Important research is now being done in Government laboratories. 70-821-----67--19 PAGENO="0290" 286 FEDERAL OIL SHALE PROGRAM In the past experimental pilot type work has been done by the Government at the Rifle plant. This work continues under a Government contract with the Colorado School of Mines Foundation. In some areas of technology and economics in which private groups have less interest, the Government might even elect to advance research via direct contracting from the beginning (as detailed in the Board's report under the heading "Federally Sponsored Research"). I, therefore, suggest that the Government prepare to pursue both approaches: (1) To offer a few small tracts of a size suitable for R & D to companies wishing to do R & D on Federal land and with a capacity to do such work effectively. The companies would be expected to provide a basis for determining the size of the tract by indicating in general the kind of research they would do. Performance requirements should be established and might include stipulated annual expenditure in specified categories of work. Such leases or permits, might run for a period of up to five years, subject to annual review, to see that genuine and substantial research was actually being undertaken. Toward the end of the the lease period the governmc~ and the company should consider whether to re- new the lease with the same or changed conditions or to extinguish the lease with the land reverting to the government. In addition to acquiring valuable know- how, such companies could apply for patents on any new processes they might work out, in accordance with patent law and procedures. The governmemit should permit sale or transfer of ownership of such leases, and of installations the holder may have developed, but the separate performance requirements for each lease unit should not be waived except when the public interest requires. (2) To put itself in a position to contract for B & D with private companies or to conduct such research itself. This would insure that the public interest is served through advancing research along various promising lines, any one of which might later result in successful application. To accomplish this purpose efficiently the Government should without delay set up long-range research goals In this field that would enable it both to evaluate progress made by others and to appraise the need for the role it should play as an active contractor for or participant in research. As a further way of inducing companies to undertake needed B & D, whether by research leases or research contracts, it is suggested that from the outset the Government make clear its intention of offering a limited number of commercial size tracts of public land for competitive leasing, say, five years from the date of the beginning of the B & D stimulation program. This might be in four years, six years, or some other period of time; the important point is that the govern- ment intention be made clear from the start. These tracts of land should be suitable in acreage and oil content to support one commercial scale mining and processing unit. To give a special incentive to companies to undertake R & D, one might consider limiting the initial group of leases to those companies which have actually undertaken R & D, on public or private lands. Significant laboratory research might also qualify companies for this advantage. While is is true that such a selective approach calls for substantial judgment and discretion on the part of the Government to prevent abuse, this is no reason for disqualifying it. As an alternative, those companies which have done R & D might be given preference to the extent of accepting their bids if they were within, say, 10% of the lowest acceptable bid. Certain conditions should be established as part of any commercial scale leases, whether they follow successful research done by permit or by contract. There should be suitable performance requirements; for example, commercial scale production would have to begin within, say, three years of the time the lease was signed, and would have to continue thereafter with suitable protection to the companies in case markets were not found for the product. The leases should also contain certain requirements regarding conservation as indicated in Section V which deals with this subject. Royalties would be collected on each barrel of oil produced. At present, 121/2 percent of the value of each barrel of oil is collected in the case of oil produced on onshore public lands, and 16% percent for oil from the offshore submerged lands. The government might also want to establish a minimum bonus based on the acreage of land, estimated reserve of oil, or some other suitable magnitude. There is no need for haste in setting desirable levels, since additional supplies of oil from this new source are not now urgently needed and competitive production of shale oil has not yet been demonstrated. The commercial scale lease land might or might not include an R & D leased plot. Ways should be found so that companies which qualify to assume corn- PAGENO="0291" FEDERAL OIL SHALE PROGRAM 287 mercial scale leases could lease land which would round out private holdings in instances where this would be the sensible course. Companies should not be permitted to obtain leases of public shale land simply as a means of holding good private land as a reserve for either speculation or production at some indefinite time in the future. It should be recognized that the approach and the policies recommended here are not intended to commit the government or private companies to particular kinds of leases or lease terms for all time. Periodically, the government should review leasing terms and procedures in close consultation with industry and others interested to see what modifications, if any, might be made in later leases. The point is to employ leasing policies for commercial scale tracts so as to give a degree of encouragement to the development of an oil shale industry, particularly the needed R & D phase which must come next in time, without in any way jeopardizing the public interest. The broad intention of these recommendations should be clear: it is to offer a reasonable degree of encouragement through appropriate R & D and sub- sequently commercial lease arrangements so that the oil shale resource may be developed, when the time is ripe, by private industry, with adequate incentives to private companies and adequate protection of the ptiblic interest in the development of a resource which is owned by all the people. Viuws OF JOHN I