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CARD DIVISION

PROPOSAL BY STANDARD OIL COMPANY OF CALIFORNIA TO MODIFY
UNIT PLAN CONTRACT NAVAL PETROLEUM RESERVE NO. 1

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1961

COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES

EIGHTY-SEVENTH CONGRESS

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HEARINGS ON PROPOSAL BY STANDARD OIL CO. OF CALIFORNIA,
DATED OCTOBER 10, 1960, TO AMEND UNIT PLAN CONTRACT
WITH THE U.S. NAVY, DATED NOVEMBER 20, 1942, RELATING
TO NAVAL PETROLEUM RESERVE NO. 1, ELK HILLS, KERN
COUNTY, CALIF.

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, D.C., Wednesday, June 14, 1961. The committee met at 10 a.m., Hon. Carl Vinson, chairman, presiding.

The CHAIRMAN. Let the committee come to order. Members of the committee, last June the Standard Oil Co. of California, which made a unit plan contract in 1942 with the Navy Department for the operation of Elk Hills Naval Petroleum Reserve No. 1, in which it is a part owner, proposed that its contract of 1942 be modified.

The Under Secretary of the Navy submitted this proposal to this committee, which, under the law, must come into agreeinent on contracts relating to the operation of this reserve.

As chairman, I agreed to the request of Standard that the committee hear and consider their proposal in February of this year.

I need not remind the members that February proved an impossible choice, because of the many commitments of the committee which had priority over this subject.

I might state that only yesterday we finished our bills that were on the calendar. So this particular matter has been continued until now, which is our first opportunity for a hearing.

For the further information of the committee, chapter 641 of title 10 of the United States Code requires that the contracts affecting naval reserves shall not be concluded until an agreement as to the purpose to be accomplished shall have been referred to this committee.

Standard has proposed to modify its contracts, in particular which I need not now detail, and this matter has been set down for a hearing on its merits.

The following correspondence explains the matter.

Now, I want to put in the record-Mr. Courtney, will you read this correspondence, right here?

Mr. COURTNEY. Mr. Chairman, the first is a letter dated June 16, 1960, from the Under Secretary of the Navy, directed to yourself:

Reference is made to a letter to you dated June 15, 1955, signed by the Under Secretary of the Navy in which a proposal of the Standard Oil Co. of California was forwarded. This proposal concerned a change in the unit plan con(2017)

tract for the operation of Naval Petroleum Reserve No. 1 (Elk Hills, Calif.). By your letter of June 20, 1955, you indicated you would not approve the proposal since it was your opinion that there were not sufficient advantages therein and since the proposal did not represent an improvement over the unit plan contract.

Upon being informed of your view concerning the proposal, the Standard Oil Co. of California resumed negotiation with the Director, Naval Petroleum and Oil Shale Reserves, in order to attempt to reach an agreement on a proposal which would be more favorable to the Government.

The new proposal was submitted to the consultant firm of DeGolyer & MacNaughton for an opinion. This opinion and the proposal are submitted herewith for your consideration.

Inasmuch as Navy is merely the trustee for the Congress of Naval Petroleum Reserve No. 1, it is not considered appropriate for the Navy to either oppose or support acceptance of the proposal; however, it is the Navy view that the proposal is sufficiently meritorious to warrant consideration by your committee. Should the committee desire, my staff and I will be happy to discuss its advantages and disadvantages with the committee. Furthermore, it is my understanding that the Standard Oil Co. of California desires an opportunity to make a presentation on the proposal at the committee's convenience.

Sincerely yours,

The CHAIRMAN. Now read my letter.

Under Secretary of the Navy.

Mr. COURTNEY. And this is the response, under the same date, Mr. Chairman, from yourself to the Honorable Fred A. Bentz, Department of the Navy.

DEAR MR. SECRETARY: Thank you for forwarding the proposal of the Standard Oil Co. of California to modify the unit plan contract for the operation of Naval Petroleum Reserve No. 1 (Elk Hills, Calif.).

On the basis of your statement that the Navy feels the proposal is sufficiently meritorious to warrant consideration by this committee, I have concluded committee consideration will be given.

A copy of my self-explanatory letter to Mr. O'Brien is hereto attached. Sincerely yours,

CARL VINSON, Chairman.

Accompanying this is a letter dated June 16, 1960, directed to Mr. George J. O'Brien, vice president, Government relations and conservation, Sandard Oil Co. of California, 225 Bush Street, San Francisco 20, Calif.

DEAR MR. O'BRIEN: The Under Secretary of the Navy has forwarded to me your company's proposed modification of the unit plan contract relating to Naval Petroleum Reserve No. 1 (Elk Hills, Calif.). Also forwarded was the report prepared by the consultant firm of DeGolyer & MacNaughton on the proposal.

In his letter the Under Secretary states that "It is the Navy's view that the proposal is sufficiently meritorious to warrant consideration by your committee." In view of this statement I have concluded that it would be proper to have the House Armed Services Committee conduct hearings on this proposal.

You are, of course, aware that the 86th Congress is very close to adjournment. In view of the importance of the subject matter and the shortness of time now available, I think you will agree that it is not feasible to undertake this hearing before the next session. In addition, the inauguration of a new President and the reorganization of the Congress will require some time at the beginning of the 87th Congress. I can only estimate the time which will elapse before this committee will be officially organized in the 87th Congress. But I am hopeful it will occur by the end of January 1961. While I cannot be precise as to the date on which hearings can begin, it is my intention that they begin as early as possible in February 1961.

In furtherance of this undertaking it is requested that you forward to the committee, not later than January 15, 1961, sufficient copies of Standard's proposal to accommodate the entire membership of the committee (37) as well as a few additional copies for staff personnel and the press.

You will appreciate that the foregoing commitments are predicated upon my continuing as chairman of this committee in the 87th Congress. In the event political control of the House should change, I want you to know that I will urge whoever may be the chairman to fully abide by this commitment.

Sincerely yours,

CARL VINSON, Chairman.

The CHAIRMAN. Now, members, Mr. O'Brien, the vice president of the Standard Oil Co. of California, is present. He has a statement which he desires to make to the committee. I will recognize him for that purpose and ask him to proceed without interruption until he has completed.

He will be followed by other witnesses from Standard.

Then we will take the testimony of the Navy Department.
And I desire to submit a statement during the hearing.

Now, to keep the record complete, I desire to file the summary proposed modification of Elk Hills unit plan contract of October 10, 1960, in the record.

(The summary follows:)

BACKGROUND DATA ON PROPOSAL TO MODIFY THE ELK HILLS NAVAL PETROLEUM RESERVE UNIT PLAN CONTRACT

For informational background, four charts are attached showing the major productive oil zones of Elk Hills, the important physical data regarding each, and the reserve and production position of Navy and Standard before and after the proposed modification.

1. What is Elk Hills?

Elk Hills (Naval Petroleum Reserve No. 1) was established by the Executive order of President Taft in 1912, covering some 38,000 acres, with the administration of the reserve in the Department of the Navy. At the time of the order, a substantial area of Elk Hills was already privately held by Standard of California and others. These holdings were exempted from Navy jurisdiction.

The reserve is located a few miles southwest of Bakersfield, Calif. Oil was discovered on Standard's Elk Hills lands in 1919 and on the Navy's lands in 1921. The field is estimated to have more than a billion barrels of recoverable oil. Boundaries of the reserve now encompass some 46,000 acres.

Elk Hills has two major oil zones-the Stevens (deep) zone and the shallow oil zone. The Stevens zone, which contains more than 65 percent of the reserves, is shut in but held in readiness to produce in a national emergency. The shallow zone, now about 40 percent depleted, cannot be completely shut in and must be produced (currently at a rate of 12,000 barrels per day) to prevent drainage loss in part of the oil in place. Total capacity of present wells in the reserve is about 175,000 barrels per day.

2. What is the present relationship between Standard and Navy?

Of the total land involved in the reserve, Standard owns about 9,000 acres; Navy owns the balance. Approximately one-fifth of the recoverable oil underlies Standard lands and four-fifths underlie Navy lands. Standard's holdings are checkerboarded among the Navy lands.

Prior to 1942, the presence of private interests in the field complicated administration of the Navy's holdings since the basic objectives of the Navy and of the commercial producers were at cross-purposes. The assigned duty of Navy was to conserve oil in the ground, while the equally legitimate goal of the private owners was to produce their oil.

The nature of underground oil formations is such that if Navy's lands were "shut in," while nearby privately owned wells continued in operation, Navy oil would ultimately flow under the private lands, into the void left by private production. Accordingly, Navy embarked upon a program of acquiring control of private holdings adjacent to or within its reserve.

(Complete protection of the Navy's underground oil was finally achieved during World War II when Navy and Standard, by then the last remaining private owner in the field, entered into a unit plan contract for the operation of Elk Hills.) The alternative to this contract was condemnation of Standard's lands.

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