and the protection of correlative rights than could have been made by any national agency. The intrusion of partial national control, direct or indirect, into this field is unjustified. There is no history to justify the hope for better results from national control rather than State control of this activity. The public consideration, regard, and conscience for the prevention of waste in the producing States far exceed the emotional, synthetic concern of remote reformers. Our people regard it as a matter of self-interest and not a social objective. Threats of the self-appointed and unauthorized do not contribute to this worthy effort. The bill before your committee once and for all will dissolve the conception that the Congress has given authority to the Federal Power Commission over this matter.

The Federal Power Commission has regarded the purposes for which natural gas may be sold and used with grave concern, It has weighed on delicate scales the conflicting pecuniary interests of those who sell coal and oil and gas and other fuels. It has at times decided that natural gas should not be used as industrial fuel because coal was available. It has proposed at times the estab lishment of classifications of use under the general headings of "inferior" and "superior." It would judge when the use of gas as fuel is "superior" and when it is “inferior". The assertion of such power is so far-reaching in its implications that the oil and gas industry finds it difficult to disbelieve that nationalization of the energy resources of this Nation is not the hope and objective of those who put forward such theories. Certainly, an agency that can dictate who can use natural gas and for what purpose it can be used can also dictate what other fuels the consuming public must use and when and for what purposes they may be used. Unless we are to establish Federal bureaucratic control over the end use of coal, electricity, water power, oil, and other energy resources why should we do so with respect to natural gas?

And let me remind you that whoever controls the use of gas at the end of the pipe line will control it at the beginning of the pipe line. Control of end use will be control of production and conservation as well.

This subject of "end use" of natural gas as posed by the Federal Power Commission is so important and vital that I am filing with the committee an excellent discussion and exposé thereof which was prepared by Mr. George Hill, Jr., of Houston, Tex., and introduced by him in evidence in the Federal Power Commission hearings in docket G-580. I hope that each member of the committee will find time to read it.

III. NATIONAL CONTROL OVER INTERSTATE TRANSPORTATION OF NATURAL GAS

I recognize that Federal regulation of interstate trunk line transportation of natural gas, excluding on the one end production and gathering and on the other local distribution, is necessary in the national interest. This Federal control of interstate transportation must not be used as a battering ram to break down the independence and financial soundness of the producers. The staff reports of the Federal Power Commission in docket No. G-580 concede our position that the broad public interest with respect to natural gas is not likely to be furthered by the Federal Power Commission's administration of the Natural Gas Act for the exclusive benefit of the consumers and the investors in pipe lines. Our complaint is that the Federal Power Commission, even in administering its legitimate powers, has not only been unmindful of the effect of its action on oil and gas producers but that it has suppressed, discouraged, and confused oil and gas producers by both direct and indirect control of production and gathering and sales by producers and gatherers to interstate pipe line companies. Our view is that Congress intended to prohibit the Commission from having direct and indirect control over production and gathering, and sales incident thereto, and that the act should be so amended as to conform with the original intention of the Congress.

The Federal Power Commission has intruded into the oil and gas producing business through specious interpretation of its certificate powers, through an enlarged conception of its powers over interstate transportation, indirectly by administrative devices with respect to rate making, and through enlargement of its accounting practices. Hence, since a general prohibition immunizing production and gathering from Federal Power Commission control has failed, we insist that there be a specific definition in the act so detailed that no excuse will exist for misinterpretation, misunderstanding, or overextension of Federal Power Commission jurisdiction.

The interstate trunk-line transportation of natural gas between the producers in the oil and gas fields and the consumers must be regulated without bias or prejudice against the one or favor or preference for the other. House Resolution 2185 will accomplish this result.

IV. CONGRESSIONAL ACTION THE ONLY REMEDY

The great issue which is tendered to this committee involves the question of whether the Congress shall define the powers and jurisdiction of the Federal Power Commission with precision, or whether the Commission shall be left free to determine its own jurisdiction from time to time as it sees fit. The very essence of the reports made by the staff of the Commission in docket No. G-580 is that the lack of definite statutory standards by which the Commission's jurisdiction may be determined has created a serious and undesirable state of confusion in the oil and gas business and among the various States which are charged with the important duty of regulating oil and gas production and of applying proper conservation measures.

No regulatory Commission should be permitted to determine its own jurisdiction. Experience has shown that even the best of men should not be entrusted with indefinite governmental powers. We desire to continue under a government of laws and not to become a government of men. This basic principle cannot be reconciled with the current suggestion of the Commission's staff that the important jurisdictional standards which House Resolution 2185 embodies, such as the definitions of production, gathering, and transportation, be left open for determination by the Commission in each instance according to the particular circumstances involved.

The Congress can, and in my opinion should, definitely draw the line beyond which the powers of the Commission under the Natural Gas Act cannot be extended either directly or indirectly. The citizens who may be subject to this act are entitled to know which side of the line they are on. If the line can be moved or bent from time to time according to the notions of the Commission in a particular case, then the citizens are left to struggle with the impulses of a particular group of men whose notions have changed and undoubtedly will continue to change radically from time to time.

To delay settlement of the important issues thus tendered will be to extend and perpetuate the undesirable conditions which admittedly now exist and which ought to be remedied by congressional action.

The CHAIRMAN. That is all, Major Hardey. Thank you.

Mr. HARDEY. Thank you, sir.

The CHAIRMAN. Before calling the next witness I regret the necessity of again emphasizing the fact that the time of the committee is so limited that with a schedule of hearings for the coming week already fixed it is necessary that witnesses presented to the committee shall not be repetitious in character in their statements. Time and again a point has been made, as has been so well made by this last witness, that the great issue which is tendered to this committee involves the question of whether the Congress shall define the powers and jurisdiction of the Federal Power Commission with precision, or whether the Commission shall be left free to determine its own jurisdiction from time to time, as it sees fit.

That point has been so well made by each of the speakers that you can assume that the committee realizes that that is the issue, and that the data in support of those points has in each instance been interesting, but nevertheless it has been repetitious.

I am fearful that we will get to a point where we will only have heard some of the witnesses. I want an opportunity to be given to all witnesses who have come here to be heard. I appreciate the fact that each witness feels that he has the most important statement of all to make. Just bear in mind that maybe the other fellow has some thought that is worth while to this committee, and try to select in each of your state

ments what you consider the most important part of that statement so that the committee will have the maximum number of witnesses heard when these hearings are concluded.

I again make mention of the fact that your complete statement goes into the record. I want you to assume that the committee is interested in this important subject, and will give studious and careful consideration to your statements even if each word has not been delivered in the presence of the committee.

The next witness will be R. C. Kay, chairman of the gas committee, Panhandle Producers and Royalty Owners Association, chairman of the natural gas committee, Independent Petroleum Association of America, Amarillo, Tex.

STATEMENT OF R. C. KAY, CHAIRMAN OF THE GAS COMMITTEE, PANHANDLE PRODUCERS AND ROYALTY OWNERS ASSOCIATION; CHAIRMAN OF THE NATURAL GAS COMMITTEE, INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA, AMARILLO, TEX.

Mr. KAY. Mr. Chairman and members of the committee, my name is R. C. Kay. I am a resident of Amarillo, Tex., which is the principal city of the largest natural gas field in the world, the Panhandle oil and gas field. I am chairman of the gas committee of the Panhandle Producers and Royalty Owners Association. I am also chairman of the natural gas committee of the Independent Petroleum Association of America. I am a land and royalty owner and an independent producer of oil and gas.

I testified at the Houston hearing of the Federal Power Commission in docket G-580 on the subject of land and royalty owners' viewpoint. In addition to many years first-hand familiarity with this subject, for the past 2 years I have consulted extensively with other land and royalty owners and producers from many fields. I was a member of the Governor's Natural Gas Committee in Texas and later also served as chairman of the special Federal Power Commission committee of the Independent Petroleum Association of America.

The brief entitled "Statement of Position and Recommendations of the Independent Petroleum Association of America" was filed with the Federal Power Commission on October 15, 1946, and carries the unanimous approval of the association. The Panhandle Producers and Royalty Owners Association and many other local and regional organizations of producers and royalty owners have adopted resolutions endorsing the principles and definitions incorporated in the Rizley bill. I have acquainted myself, as well as the short time has allowed, with the four staff reports of the Federal Power Commission issued this past month, all dealing with the production aspects of the naturalgas business, including the recommendation with respect to section 1 (b) of the Natural Gas Act of 1938. I appreciate the opportunity to discuss some of the problems of the land and royalty owners, Mr. Rizley's bill H. R. 2185, and the four staff reports referred to above.

For those of you who may not be familiar with oil and gas leases, royalties, and the producing customs of the industry, I will briefly explain them and then try to show you the extent of the land and royalty owners interest.

The farmer or rancher or other landowner in the United States is the owner of the underlying minerals and is therefore the lessor and

royalty owner under oil and gas leases, except to the extent that such minerals may have been reserved by the Federal Government, the State, or previous landowner or sold to a royalty purchaser.

In entering into oil and gas leases the lessor customarily reserves or contracts to receive one-eighth of the product or of the proceeds or market value of same at the well. He leases his land to the producer primarily for the purpose of obtaining exploration and development and financial return to himself and his family during his and their lifetime.

At the present time he is also concerned in the case of natural gas with its possibly fleeting value as a preferred fuel in the light of scientific development of other fuel and power sources. He prefers a producer well equipped with the capital, scientific knowledge, and experience necessary in undertaking the risks involved.

The cash bonus received by the landowner as consideration for his lease is usually indicative of the relative risk involved in seeking production on the land in question. In rank wildcat areas a small bonus or drilling obligation is accepted and is, at least to a certain degree, an inducement to the operator to assume the tremendous risks and the high percentage of failures to be expected.

It is only under the American system of free enterprise and conpetition that wildcatting has flourished. The rewards should be commensurate, and necessarily must be, if unsubsidized independent exploration and development is to continue. The land and royalty owner takes this into consideration in granting the lease. It should receive the same consideration from any Federal or State agency.

Let us see the extent of the interest of these land and royalty owners. In my home State of Texas alone about 5,500,000 acres, located in over 180 of the 254 counties, are in producing leases and just about 10 times as much or 55,000,000 acres representing every county in the State, are under lease.

The leased area in Texas alone approximates 3 percent of the total land area of the United States, and is about the same as the land area of Pennsylvania and Ohio combined. Both of these States are also producing oil and gas. In Texas alone royalties are being paid to over 160,000 land and royalty owners, and while I have been unable to obtain accurate figures for the whole United States, conservative estimates run well over a million owners. Translated into families, they approximate a substantial percentage of the total population of the oil and gas producing States.

We could not properly speak of the land and royalty owners' interest without referring briefly to the largest of all the land and royalty owners, the State of Texas. According to the General Land Office of Texas, the State now owns, in the permanent free school fund, the university fund, and miscellaneous funds, minerals under over 15,090,900 acres, which nearly approximates the total land area of Vermont, New Hampshire, and Connecticut. Of this area, 1,653,593 acres is leased for oil and gas, and producing leases embrace 209,522 acres. From these producing leases the State, and very largely the educational institutions in the State, currently receive oil and gas royalties in excess of $6,000,000 a year.

The land and royalty owner wants protecton of his property rights and right of contract with respect thereto. He favors reasonable conservation laws and regulation to permit the production of his oil

and gas over a reasonable period of time. He wants, and will continue to contend for, a fair price for his property commensurate with its competitive value for the uses for which it is suitable.

He wants expanding markets with a fair price-he wants no restrictions on these markets other than limitations naturally arising from bona fide competition and he wants his lessee to have a fair and reasonable opportunity to market gas ratably with his neighbors.

The land and royalty owner believes these things can be accomplished under State laws, and rules and regulations of the State's administrative agencies, and that Federal agencies should not attempt to or be allowed to encroach upon the inherent right of the State in regulating such matters.

Determinations made by the Federal Power Commission and decisions of the Supreme Court of the United States pertaining to determinations of the Power Commission have invaded, and threaten further invasion, of State control of the oil and gas producing business and the rights of individuals and companies to fully enjoy the ownership of their properties and to freely contract with reference thereto.

The very breadth of the agenda of the Federal Power Commission natural gas investigation in docket G-580 showed that the Commission was concerning itself with every phase of the business of producing oil and gas and was wandering far afield from the limited area of jurisdiction over transportation of natural gas in interstate commerce granted to it by Congress.

If the landowners grant an oil and gas lease on our land providing for royalty on the basis of a one-eighth portion of the proceeds received from the sale of gas-and there are many such leases-we do not want any Federal agency to convert that purely private and local business transaction into a public utility.

If the lease on this land becomes owned by an interstate pipe line company we do not want the value of the gas from that land and the value of our royalty fixed by any bureau or others based upon the overall operations of such pipe lines. Remember that we own this land and the minerals in place and have participated and still are participating in the heartbreaks and losses of exploration and should not be prevented from participating in the joy of discovery. These are our fundamental rights of ownership.

The land and royalty owner justifiably believes that if the value of gas produced from his lands by his lessee is fixed on a utility basis, taking into account all operations of his lessee, that such value so fixed may be reduced far below its intrinsic or market value, and that he will suffer thereby.

He further believes that such method will not only adversely affect him as to the particular lease involved, but will depress the market value of all other gas in the vicinity and further that it will have a disastrous effect on the value of his gas in the ground and the bonus consideration he hopes to receive for a lease thereon.

Among our land and royalty owners, as well as producers, we confer with many lawyers. I personally am not a lawyer but I am repeatedly advised there exists a possibility-regarded by some of these attorneys as a probability—that a producer or royalty owner, although not affiliated with an interstate gas transportation line or having any control whatsoever as a royalty owner over the sale or end use of his gas, might