We are sure the learned members of the House Interior Subcommittee on Mines and Mining will readily appreciate what would happen to schools, units of local government, and to support of state government if any sizeable proportion of this tax valuation were to be reduced through depressing the price of petroleum upon which this assessment is based.

We are sure this committee is well aware of the fact that over one million one hundred fifty thousand people are employed in this industry in the United States, but it may not be quite as aware of the fact that in the state of Wyoming with a total population of 330 thousand people, 11,630 people are employed by this industry.

We believe that cuts, as proposed in the price of domestic petroleum, would materially reduce the income to the United States government. As you are undoubtedly aware, mineral ownership amounting to seventy percent of the total area in the state of Wyoming is retained by the Federal Government. It is also of interest to note that approximately seventy percent of the petroleum production in the state comes from these federally owned deposits. The royalties paid to the Federal Government provides funding for a substantial part of the reclamation projects administered by the Department of the Interior. These federal royalties derived from petroleum production in Wyoming over the years exceed 665 million dollars. Further development of federally owned minerals producing this revenue could be seriously reduced if the changes proposed by the Task Force are implemented.

Some 2,693 stripper wells in Wyoming would, in all probability, have to be abandoned if such price reductions as have been proposed were to be imposed. This would leave estimated reserves of over 135 million barrels in the ground representing a tremendous economic loss to the nation and to the state of Wyoming. Nationally, the stripper well reserves of over six billion barrels could suffer the same fate.

Critics claim that the Petroleum Industry has received unwarranted and unusual benefits, but we would like to call attention to the fact that industry earnings have not been above average-as a matter of fact, they have consistently been slightly under the average for all manufacturing industries for many years. The question might well be asked, since earnings in the oil industry are reputedly so great-why have not all investors rushed to put their investment capital in the Petroleum Industry?

We would like to point out that the consumer has been served extremely well by the highly competitive Petroleum Industry. The price index for our principle product which is gasoline, in September of 1969, was at 111.1 exclusive of tax, compared to the index for the same month on all items which had reached 129.3. We believe that these figures tell their own story.

STATEMENT OF WARREN A. MORTON, CASPER, WYO.

My name is Warren A. Morton. I am an Independent Oil Operator from Casper, Wyoming, having been engaged in the oil and gas business all of my adult life. I am also Chairman of the Oil, Gas, Mines and Mining Committee of the Wyoming House of Representatives, and in addition, serve as the Governor's Representative for Wyoming to the Interstate Oil Compact Commission, a position I have held for the past seven years. It is in the latter position that I appear before this Committee today.

While the announced purpose of this Committee hearing is to study the impact of oil import controls on the United States economy, I would urge the Committee to enlarge the scope of the investigation to include the entire question of Energy Self-Sufficiency for the United States. This Country and Russia are the only two major powers in the world that have the potential of Energy Self-Sufficiency. The ability of American Energy Industries to provide energy at low cost has permitted our citizens to enjoy a standard of living second to no other nation. Our people utilize various forms of fuel for home heating, cooking, household appliances, and transportation. American Industry, drawing upon all sources of fuels, has been able to supply this nation with its needs in times of both war and peace, providing the citizens of both this nation and the world with the fruits of our labor. In the unhappy event of war of any size, today's military machine runs on gasoline. As evidence of this fact witness that 50% of all tonnage shipped to Vietnam consists of petroleum products.

You may have noted that I earlier stated that this country has the potential of Energy Self-Sufficiency. The unfortunate fact is that we are not self-sufficient at this time and have not been for several years. Due to the availability of cheaper sources of foreign crude oil, this nation has followed the questionable policy of permitting foreign oil to become a significant factor in our national market. While imports are theoretically limited to 12.2% of U.S. consumption. in actual practice over 20% of U.S. consumption is provided by non U.S. oil. The trend toward dependency on foreign energy sources cannot be considered to be in the National Interest of this country. It is worth noting that the two countries that started World War II were the two major nations with the greatest dependency on foreign energy sources. In the balance of this statement I propose to explore some of the fallacious arguments that have been used to bring us to this current dilemna and then make some recommendations for future policy.

POLITICS AND CONSUMERISM

Next to environment preservation the most sacred cow in politics today is consumerism. It is the contention of some economists that the price of domestic oil is substantially higher than that of foreign sources and that by the use of imported foreign oil lower product prices will be available to the consumer. The political appeal of such a theory is obvious. However, the facts do not support the statements or the conclusions. The products of the domestic petroleum industry are crude oil and natural gas. When the combined products are converted to an equivalent barrel of oil based on the energy content the United States domestic industry is selling its product at the equivalent of $1.94 a barrel. This is cheaper than any foreign oil entering the United States. Furthermore, a study of the price of gasoline, the principle consumer product of the petroleum industry, reveals that in Western Europe which is 100% dependent upon "Cheap Foreign Oil" the retail price of gasoline ranges from 54¢ per gallon in West Germany to 72¢ per gallon in France. This compares with the average United States price in 1969 of 32¢. If the United States economy became dependent upon "Cheap Foreign Oil" it would not be unreasonable to expect the prices to escalate as they have in Western Europe which is 100% dependent upon these sources.

The maximum political pressure would appear to be generated in the New England States, where an understandable concern is expressed over the fact that fuel oil used in home heating sells for 1 to 2¢ per gallon less in Montreal, Canada than it does in the New England States. This rather unusual statistie develops from the fact that Canada does depend upon foreign oil to supply the Eastern portions of that nation. However. Canada is able to do this because of the excessive producing capacity in the Western Part of that Nation. In addition, it is only fair to point out that in the event of international emergency Canada would become dependent upon U.S. military protection to guarantee a continued flow of foreign oil to its Eastern Provinces. To that extent Canada is hiding under the umbrella of U.S. National Security measures.

ALASKAN OIL

Since the happy discovery of Prudhoe Bay in 1968 there has been a popular assumption that Alaskan production will make the United States self-sufficient again. There are several important facts that should be considered before jumping to this conclusion. While Prudhoe Bay is certainly the largest oil field discovery in North America to date, looked at in another perspective it should be recognized that the 10 billion barrels of recoverable reserves only constitute a two year supply to the U.S. Furthermore, there is no proven way of transporting this oil at this time to the "Southern 48." The spectacular voyage of the S.S. Manhattan last summer was made under the most optimum of conditions. Running the ice flows of the Arctic Ocean in the middle of winter will prove to be substantially more difficult than in the middle of the summer. Pipelines necessary to move oil from the remote north slope must cover miles of frozen tundra. The Operators and the U.S. Government working together have not yet found a way to overcome the problem of thawing and subsequent shifting of the tundra as oil is moved through any projected pipeline. One other note of caution should be sounded when evaluating the availability of North Slope crude to this Country in time of emergency. A quick look at any globe would show that this area is not only remote from the U.S. military installations, but it is also within a

standpoint Alaskan oil will never have the same value as oil produced in the "Southern 48."

STATE REGULATORY COMMISSIONS

A favorite position of all academic economists is to label the Conservation Commission of the various oil producing states as "price fixing agencies." This charge simply does not reflect the true status of the various individual State Agencies whose jurisdiction is restricted to their own State lines. In the seven years that I have been associated with the Interstate Oil Compact Commission, serving one term as Vice President, I have had occasion to observe at close range the workings of these agencies. To any one who has the time to do so, I would commend to your reading the report published by the Interstate Oil Compact Commission in 1964 entitled, "A Study of Conservation of Oil and Gas in the United States." Those outside the oil industry simply do not understand the competition that exists between the various oil producing states for the maximum piece of the United States market. Any State that is fortunate enough to have substantial oil production is eager to expand this activity because of the benefits that accrue to that State's economy. Not only are thousands of people employed by the Oil & Gas Producing Industry, but in most State's that have petroleum - production the local tax structure is keyed to the production. You should be well aware that the costs of State and Local Governments, particularly Education Costs, create an ever increasing demand for revenue. Maximum oil production and activity is the goal of every state regulatory body.

It would be worthwhile to take the time here to explain a little bit about the growth of the Conservation and Regulatory Agencies within the United States. In the early 1930's the oil industry was flooded with new production from prolific new fields in East Texas and Oklahoma. Under the wide open production practices then employed less than 5% of the oil in place would have been recovered. This would have been unconscionable waste of the assets of this country, of the States in question, and of the individuals involved. Because of the migratory nature of oil and gas, no Operator could afford to shut his own wells in while a less responsible neighbor produced at wide open rates. This would have resulted in the loss of the oil by drainage of the conservation minded operator. Furthermore, oil reservoirs cannot be turned off and on like a water well because of the movement of subsurface waters into the reservoir. Responsible people recognized that the answer was to be found in State Regulations that would assure the United States, the individual States, the Operators, both large and small. a fair chance to produce all of the oil in the reservoir that was economically feasible. As a result today modern petroleum engineering, encouraged by sound State Conservation and Regulatory Practices, permit the recovery of approximately 25 to 30% of the oil in place. Of the 35 billion barrels of recoverable reserves in the U.S. at this time, at least half of same depends upon the full economic production of the reservoir. Critics of this system say that the recovery of oil by secondary recovery techniques and stripper wells adds an unnecessary cost to the consumer. I would challenge the economists to consider the price of oil if only 5 to 10% of the oil were to be recovered. Such flagrant violations of the principles of conservation of any resource cannot be justified. It would be comparable to the slaughtering of animals to utilize only the prime cuts with the thought that the rest of the animal would be discarded. It is not hard to see that such a policy would inevitably lead to much higher prices to the consumer.

FOREIGN OIL

Many economists with a poor memory of history advocate the use of foreign oil to meet our national requirements. The greatest concentration of oil reserves in the free world is centered in the Arab world of North Africa and the Near East. It is difficult to envision a less stable area when one considers not only the current governments in power but also the uncontrolled guerrilla activities within the various nations plus the apparently irresistible temptation to the Russians to dabble in Near East politics. Add to this the obvious Israeli crisis and it is hard to envision an area that is less dependable for a vital commodity.

Another favorite argument is to create a Western Hemisphere policy for oil resources. It was only in 1969 that the Government of Peru seized the properties of Standard Oil Co. of New Jersey. This crisis is yet to be resolved by this country. A third alternative for foreign sources is to form a Continental Policy. It was as recent as the 1930's that Mexico seized all of the oil producing properties

would make sense with Canada if the latter would commit its gas reserves on the same basis as its oil production. However, as long as Canada takes the position that we can only have their excess production, no stable long range policy that will benefit this country will result.

OTHER FUELS

A popular concept among some political leaders is that because of the vast amount of coal reserves and oil shale deposits in the western part of this country that this nation is no longer dependent upon natural oil and gas. It would be most desirable if these virtually unlimited resources could be brought into the U.S. Economy. However, it should be noted that at today's prices of oil that there is no known economical method of extracting liquid petroleum from oil shale and there is no known economical method of synthesizing liquid fuels from coal. Every day that we meet current demands for energy by foreign supplies postpones the time when these great natural resources of this country will become a reality. The time lag required to convert these tremendous natural resources into useable energy forms would preclude their use in time of any emergency.

RECOMMENDATIONS

In view of all of the above it would seem not only prudent but vital that the Congress of the U.S. undertake to establish a United States Energy Policy that would assure this nation now and in the future of a dependable source of domestic fuel to meet all foreseeable needs. The simplest way to meet this requirement is to let the simple laws of supply and demand coupled with economic incentive play their normal role in the development of the domestic sources. During the past 10 years the wholesale price of all commodities within this country has risen 14%. During the same period the price of crude oil has risen 2%. If the same price advance had taken place in oil the top domestic price would be approximately 40 higher than today's level. At this price the synthetic fuels mentioned earlier start to become competitive and the consumer would be protected from price abuse from the oil industry by the development of competitive fuels from the Nuclear Field, coal synthesis, and oil shale.

Economic incentives have always proven an effective manner in which to overcome shortages of any material. In 1946 the Atomic Energy Commission recognized a shortage of nuclear fuels in this country. They issued an order guaran teeing unlimited purchases of Uranium "Yellow Cake" at $8.00 a lb. to all operators. This incentive filled the fileds with prospectors all over the United States with the result that the AEC was soon flooded with offers to produce Cranium and was forced to curtail and renegotiate their purchases. More recently, a worldwide shortage developed in sulphur that resulted in an increase in price from approximately $22.00 a ton to over $40.00 a ton. With this incentive sulphur producers reached out into all corners of the world to bring new sources of sulphur into production. The resulting over supply of sulphur has brought about a reduction in price to under $30.00 a ton.

Without meaning to open a debate on the pros and cons of the recent tax reform legislation I think that it would be unamimously agreed that the net effect of the 1969 Tax Bill was to remove economic incentives from the oil and gas industry. Representative Wilbur Mills of Arkansas recognized this when he advised the Task Force Committee of the Cabinet to weigh the impact of the tax changes care fully before advocating further disruption of the petroleum industry by changes in the import program. Im the Congress of the United States wishes to see: lessening of our dependence on foreign oil, they must take steps necessary t encourage more drilling within this country. This can be achieved if the pric of oil will be permitted to seek a more natural level with regards to other U.S. prices without Government interference or political pressure. It should be a sour of gravest concern to everyone in this country that during the week of March 2 1970 that the number of active rotary drilling rigs declined to 994. This is the firs time since 1943 that the number of active rotary rigs operating within the Unite! States has fallen below 1000.

An even greater crisis can be identified in the field of natural gas. For the past decade the domestic gas industry has been forced to operate under strict regulations of wellhead prices by the Federal Power Commission. Unrealistically l prices for natural gas were set that resulted in curtailment in exploration for this

sumption and air pollution. The average price of natural gas in the U.S. at the wellhead in 1968 was 15.6¢ per one million BTU's. As a basis of comparison the average price of a million BTU's of oil energy for the same year was 57¢. A five cent per thousand cubic foot increase in the price to the producer of natural gas would have a negligible effect on the price of the average consumer. The benefits that would result from the increased level of drilling are immeasurable.

CONCLUSIONS

I can think of no greater contribution that this committee could make to the National Security and well being of this Country than to formulate a policy that would in time lead to a position of Energy Self-Sufficiency. This could be done by permitting the price of domestic oil and gas to advance at a rate competitive with costs in order that sufficient funds would be attracted to the drilling and development of dependable domestic oil and gas reserves. As these prices advanced other fuels such as oil shale, and liquid products from coal would become economically competitive and protect the American Public from price abuse from any other source of energy. To encourage the development of these new fuels the Government could adopt a policy of encouragement by rapid tax writeoffs of first generation plants. This would encourage private industry to undertake the steps necessary to develop techniques necessary to produce these fuels without fear of unnatural competition from second and third generation plants. Such steps would assure future generations of Americans of a dependable, adequate supply of energy at realistic prices.

STATEMENT OF INDEPENDENT OIL AND GAS PRODUCERS OF CALIFORNIA,
LOS ANGELES, CALIF.

An aura of unreality-of the Never-Never Land of one's childhood-surrounds the majority report on Oil Import Controls, developed from its professional staff's recommendations and submitted to the President by the Cabinet Task Force.

It is hardly surprising, therefore, that two of the five-member majority who approved it did so with significant reservations, nor is it surprising that the President did not immediately accept it.

What is surprising, however, is that the conclusions arrived at, and the recommendations made, could have occurred at all.

Just one example of unreality, and then we discuss some of the District V recommendations with which we are primarily concerned. The unreality is: The Task Force argues that its tariff scheme will produce eventual crude prices at a lower level than those immediately forthcoming, hence the oil producer will open up his wells to get all the oil possible as soon as possible at the highest price possible, state conservation laws will be nullified, and marginal wells abandoned. All these things, the Task Force says, are good. Perhaps they would be, in the Never-Never Land of theory; in the practical world of reality, they lose the reserves underlying marginal production; they completely eliminate the incentive to transfers of oil from Districts I-IV to District V. Anyone can build a pipeline the American citizen at the mercy for foreign energy sources.

Now, for District V. The report implies that the separate treatment of the District discourages greater use of domestic oil in the District. This is simply not true. Under the present program, any additional volume of domestic oil available to the District would take the place of an equal volume of imported oil. The development of Alaskan oil is a prime example. Beyond that, there is no barrier to transfers of oil from Districts I-IV to District V. Anyone can build a pipeline into the District; his oil will displace foreign oil.

Section 305b of the report says that the separate treatment of District V has "tended to perpetuate greater District V dependence on foreign oil." Incredibly, this finding was made in the face of the fact that in 1959, imports into District V were 27% of demand but by 1969, they were only 14% of demand-an almost 50% reduction (U.S. Bureau of Mines data).

The Task Force Report continues with a discussion of potential Alaskan North Slope production, concluding that its availability will narrow, and finally eliminate, the deficit condition now existing in District V. Under those circumstances,