SUBCOMMITTEE ON ACTIVITIES OF REGULATORY AGENCIES JOHN D. DINGELL, Michigan, Chairman WILLIAM L. HUNGATE, Missouri FERNAND J. ST GERMAIN, Rhode Island JAMES T. BROYHILL, North Carolina SILVIO O. CONTE, Massachusetts WILLIAM F. DEMAREST, Jr., Subcommittee Counsel (II) Canfield, Monte, Jr., deputy director, energy policy project, Ford Foundation; accompanied by Charles Eddy, project counsel.. Clearwaters, Keith I.. Deputy Assistant Attorney General, Antitrust Hill, Melvin J., president, Gulf Global Exploration Co.; accompanied by J. O. Carter, vice president, exploration, Gulf Oil Co., United States; Eugene Hosford, executive vice president, Gulf Oil Co., United States; and Jesse P. Luton, Jr., associate general counsel, Gulf Oil Co., United States___. Holland, Henry K., Jr., vice president, Mobil Oil Corp., accompanied by Frank C. Bolton, Jr., general counsel, Mobil Oil Corp., North American Division; and Charles E. Spruell, manager, planning and evaluation for exploration and producing, Mobil Oil Corp., North Johnson, Ralph A., Industry Economist, Division of Economic Studies, 109 Lamont, William J., consultant, Joint Committee on Public Domain, 272 Loftis, John L., Jr., senior vice president, Exxon Co., U.S.A.; accom- panied by W. T. Slick, Jr., senior vice president, and Fred File, sen- Mull, J. A., independent oil producer, president, Mull Drilling Co--- Mut, Stuart, vice president of Atlantic-Richfield North American Producing Division, Arco; accompanied by Kenneth Dickerson, associate general counsel, Producing Division, and Jim Kackley, Neuman, Richard, special counsel, Joint Committee on Public Domain, California State Legislature.. Vogely, Dr. William A., Acting Deputy Assistant Secretary for Energy Additional information supplied for the record- Allen, C. M., on behalf of the Gas Supply Committee: Prepared state- 194 Additional information supplied for the record-Continued Canfield, Monte, Jr., deputy director, energy policy project, Ford Foun- Page 156 145 438 Hill, Melvin J., president, Gulf Global Exploration Co.: Gulf's policy in regard to joint bidding- 308 356 Holland, Henry K., Jr., vice president, Mobil Oil Corp.: Information relative to bids by Mobil Oil Corp. on Outer Continental Shelf leases Johnson, Ralph A., industry economist, Division of Economic Studies, Report on indicated disparity in reporting of offshore Louisiana 124 Summary of the status as of January 1974 of 185 leases classified 112 Krahl, Richard, Operations Branch, Conservation Division, U.S. Geo- 259 384 McKelvey, Vincent, Director, U.S. Geological Survey: Estimated total cost and personnel requirements of computing re- 255 Maximum efficient rate of production_--- 256 258 268 Response to opening statement by Chairman Dingell, letter dated Shut-in wells restored to productivity since December 31, 1973--Mut, Stuart, vice president of Atlantic-Richfield North American Producing Division, Arco: Tables and exhibits in reference to joint bidding practices___. Oil and Gas Journal: "Offshore Lessees Win USGS Reprieve: Eight Schwartz, David S., Assistant Chief, Office of Economics, Federal 263 422 135 Bidding combinations associated with joint ventures in various 105 Prepared statement and other relevant material_. 69 Sprague, John W., Chief, Division of Marine Minerals, Bureau of Land 220 458 Vogely, Dr. William A., Acting Deputy Assistant Secretary for Energy 240 Bonus bid information on leases returned as nonproductive_-_ 230 263 Tables in reference to current dollar and present dollar revenue and net value of production from Outer Continental Shelf.. Zareski, Gordon, Chief, Planning and Development Division, Bureau of Natural Gas, Federal Power Commission: 197 Offshore investigation: Producible shut-in leases (first phase) Appendix A.-Department of the Interior memorandum re accelerated 507 Appendix B.-Supplemental material received for the record__. 515 Appendix C.-Report on indicated disparity in reporting of offshore 539 Appendix D.-Offshore investigation: Producible shut-in leases, as of 556 ENERGY DATA REQUIREMENTS OF THE FEDERAL GOVERNMENT (Part III-Federal Offshore Oil and Gas Leasing Policies) TUESDAY, MARCH 26, 1974 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ACTIVITIES OF REGULATORY AGENCIES OF THE PERMANENT SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2322, Rayburn House Office Building, Hon. John D. Dingell (chairman of the subcommittee) presiding. Present: Representatives Dingell, Hungate, and Broyhill (North Carolina). Also present: William F. Demarest, Jr., subcommittee counsel, Myrtle Ruth Foutch, clerk; and Paul E. Kritzer, assistant minority counsel. Mr. DINGELL. The subcommittee will come to order. OPENING STATEMENT OF CHAIRMAN DINGELL On Thursday of this week, the Department of the Interior will offer for lease nearly 1 million acres of Outer Continental Shelf oil and gas lands. This lease sale is part of an expanded leasing program aimed at leasing 10 million acres per year next year and in succeeding years. At the outset of this most ambitious undertaking, the magnitude of the expanded lease program should be placed in perspective with past leasing programs, Interior's less than lustrous record in Outer Continental Shelf evaluation and lease management, and the proindustry policies the Department's historical leasing program have followed, including the Department's acquiescence in joint ventures among major oil companies which have had as their fundamental purpose and effect the elimination of competition especially from small independents. The 1 million-acre sale which will take place Thursday will be the second largest lease sale in over a dozen years. The 10 million acres planned to be leased during the 1975 calendar year is more than the total Outer Continental Shelf acreage previously leased by the Department during the 20-year history of the Outer Continental Shelf lease program. It is more than 5 times the previous annual high; and 10 times the amount leased last year. 10 million acres per year is a tremendous amount of ground. I want to emphasize that I do not object to increased Outer Continental Shelf leasing, as such. I have serious reservations, however, about such a sudden ballooning in the acreage to be leased in view of the Department's apparent inability to manage even a 1-million acre per year program. I might indicate that not only do there appear to be grave reasons for concern regarding protection of small business, but there is considerable reason to suspect that the Interior Department cannot provide the appropriate environmental protections either. The staff of the subcommittee has investigated the Interior Department's leasing practices and found them to be scandalously incompetent. There are instances of Interior Department evaluation of tracts at hundreds and hundreds of times less than the successful bidder. Yet, despite a pattern of repeated underevaluation in the exceedingly rare instance in which the high bid is less than the Department's evaluation, the Department nevertheless accepts the bid even if it is the only bid on the tract. The staff has developed examples of phantom evaluations-evaluations that cannot represent realistic appraisals of the tract but are automatically inserted whenever and wherever no other value is set. How else can the appearance of the number $144,000 35 times out of 89 tracts bid upon be explained? In addition this $144,000 is the only figure of the 89 presale evaluations which is an exact thousand. This is clearly a phantom number and the discrepancy between the Department's presale evaluation and the high bid on these tracts is roughly six times greater than the overall error on all tracts. Statistically, the Department would be better off with dice or a dart board. Other matters regarding management of the Outer Continental Shelf appall me. Apparently the Geological Survey has never once in 20 years canceled a lease for wrongdoing. The major oil companies must be the best tenants in the world. Or, maybe this is due to the fact that the Geological Survey has never aggressively investigated the goings-on on the Outer Continental Shelf. In fact, extensions of lease terms have become so routine, that a form letter is actually used to grant extensions. Another serious problem area relates to the existence of capped or shut-in wells. Large numbers of these wells, capable of producing oil and gas in commercial quantities, are capped and waiting for what? For higher prices? Interior has never investigated the justification for the vague excuses the industry offers for shutting in these wells. These are the people's lands and the people deserve some honest answers. The final and most pressing concern regarding Interior's management of these lands relates to the fact that the Department's leasing policies actually perpetuate and, in some cases, foster greater concentration in an already oligopolistic industry. I am convinced, as is the Bureau of Competition of the Federal Trade Commission, that the degree of concentration existing in the petroleum industry stifles competition leading to higher prices paid by the consumer and skyrocketing profits to the industry. |