Page images

office of the Coordinator. However, we are ready to meet the convenience of the committee.

Senator CARAWAY. What do you think, Senator Vandenberg?

Senator VANDENBERG. It does not make any difference to meround 1, round 2, or round 10.

Senator CARAWAY. Suppose we hear Mr. Knowlton, then.


OFFICE OF PETROLEUM COORDINATOR FOR WAR Mr. KNOWLTON. Madame Chairman and members of the committee, I have been asked to appear before your committee to discuss the proposed amendment to H. R. 6999. This proposal would have the effect of largely abrogating the authority of the War Production Board provided under the Vinson Act and delegated by the President through his war powers to the War Production Board and the Office of Petroleum Coordinator, whereby those agencies are empowered to take such action as is necessary to conserve critical materials and to insure an adequate and sustained supply of petroleum for the duration of the war program. I welcome the opportunity your invitation affords me of explaining, in as much detail as may be required, the reasons why the ill-advised and widespread relaxation of restrictions now in effect on the drilling of oil wells during this critical period in the Nation's history would be highly detrimental to the war program and to the maintenance of an adequate supply of crude petroleum. Not only would it be ill-advised from the standpoint of winning a long, protracted war, but also it would be contrary to the program instituted by the War Production Board for the purpose of conserving and expending in the most judicious manner the critical materials of the Nation, including those quantities of material and equipment that are presently fabricated and ready for use in warehouses and in stock piles throughout the Nation.

I am sure that there is hardly need for me to recall the attention of the committee to the fact that serious deficiencies exist at this time in supplies of many basic materials and in manufacturing capacities required to provide the implements of war. These shortages have affected the supplies of equipment that can be provided for the petroleum industry to drill wells; to provide necessary added transportation facilities of one type or another, and to build refineries, in exactly the same way as they have reduced the quantities of materials of every kind that are available to many other industries whose functioning is essential to the successful prosecution of the war program. The shortage of materials simply means that all phases of American industry as well as the public at large must carry on necessary operations and activities with a minimum expenditure of critical materials. It is the duty of every person and every industry to adopt this policy and to abide by those restrictions that necessarily must be imposed to save materials for the best over-all advantage of the war program. Speaking of the production branch of the petroleum industry specifically, the unrestricted and unnecessary drilling which has characterized the past development of a large proportion of the oil fields of the Nation, including many of those in Illinois as well as in most other oil-producing States, must be avoided during this emergency. The most judicious use must be made of the limited amounts of existing materials,

or of those that may be made available to the industry, in terms of oil discovered, developed, and produced. No producing area can be allowed to waste materials, for this would simply deprive other areas of necessary materials and thus hamper the maintenance of an adequate petroleum supply.

By way of brief review, I should like to trace the major transitions that have occurred since last fall in the estimates of oil-well drilling that would be undertaken during the current year. This should bring out the basic reasons why it became necessary to restrict oil- and gaswell drilling soon after Pearl Harbor, and why it is absolutely essential that these restrictions must remain in effect for the duration of the war or, at least until more material is in sight and definitely available to permit a greater amount of drilling.

One of the first studies to be made in the Office of Petroleum Coordinator, following its inception on May 28 of last year, involved the consideration of petroleum reserves, probable future production rates, and finally the amount of drilling that should be undertaken during 1942.

During the summer and fall months of last year, it was considered that the petroleum industry should drill 30,000 wells during 1942 in order to maintain petroleum reserves at a proper level. This estimate took into account the materials that it appeared could be allotted to the petroleum industry at that time but, frankly, the volume of materials that appeared available last fall was mountainous compared with the quantities that are currently to be had.

Shortly before Pearl Harbor, the War Production Board issued advices to the effect that materials expended in unrestricted drilling could not be provided and that a drastic reduction in the 30,000-well figure would have to be made.

Accustomed as the petroleum industry had been to drilling when and where it desired without considering serious restrictive measures, the announcement that drilling operations would have to be curtailed, possibly cut in half, was received with dire misgivings by the Petroleum Coordinator's office.

It was necessary immediately to revise our thinking, trim our sails, and begin looking at the future in an entirely different light. Instead of giving primary consideration to what the industry would like to do in the way of drilling wells, it became necessary to think in terms of deriving the maximum, or at least an adequate amount of petroleum exploration and orderly development activity from the expenditure of the least amount of the critical materials that the War Production Board was forecasting would become increasingly scarce.

As a part of the “reducing exercises” that we were required to undertake, it was necessary to think in terms of the maximum amount of acreage that a specific oil or gas well could be expected to drain efficiently. The subject of well spacing had been and still is highly controversial in the industry. The primary problem confronting us in this instance, however, was to find a well-spacing basis that would satisfy two opposing requirements: (1) Close spacing that is required and justified in some fields under certain circumstances, and (2) wide spacing to reduce the total quantity of material required by the drilling branch of the industry in conformance with the War Production Board's program for conserving critical materials.

[blocks in formation]

After many studies and forecasts of total material requirements involved in various spacing patterns, it was determined that a broad Nation-wide policy of 40-acre spacing for oil wells and 640-acre spacing for gas wells showed promise of attaining a reduction in materials consumption closely approximating the War Production Board's demands.

Basic spacing requirements of 40 acres and 640 acres for oil and gas wells, respectively, were written into conservation order M-68, which was approved and issued by the Office of Production Management on December 23, 1941, 16 days after Pearl Harbor. These are the spacing requirements that are in effect today. The order provides, however, for the granting of exceptions so that upon proper showing of necessity, the broad well-spacing requirements may be changed in the case of any particular field or property to permit adoption of the most proper plan to meet the specific physical conditions involved in the case. Several hundred such exceptions have been granted throughout the oil fields of the country.

The committee's attention is again directed to the fact that the restrictions on the density of drilling are Nation-wide and do not favor or discriminate against any area.

Order M-68 was designed so that cognizance could be taken of the particular needs and conditions of each field and area with respect to density of drilling required to recover the oil. In administering the order, the 0. P. C. is actively and carefully giving attention to such needs. One outstanding and large-scale example is the relatively close spacing of wells which is being permitted in the prolific heavy-gravity oil fields of California. As a result of a survey and recommendations of the District 5 Petroleum Industry Production Committee, which forms an integral part of the Petroleum Coordinator's organization, development will proceed on the basis of 5-acre and 10-acre drilling in a number of California fields in order to provide required additional current productive capacity. Such dense development is feasible because of the great thickness of the productive formations in many California fields. At the present time similar surveys are being conducted in district 2, which includes the tri-State area of Illinois, Indiana, and Kentucky. The 0. P. C. has repeatedly urged operators in all oil fields of the Nation to submit their bona fide recommendations with respect to development and drilling of the various fields. It has been suggested to both operators and State regulatory bodies that the applications should be made on a field-wide basis so that a single application will be made on behalf of all operators in any particular field.

In 1941 the petroleum industry drilled a total of 37,000 wells. Of this number, 22,000 wells were actually completed and equipped as oil or gas producers. Estimates of the probable number of wells that would be drilled under order M–68 indicated a total of 19,000 wells during 1942, representing 60 percent of the total number drilled last year. It was further estimated that only 14,000 of these wells would be completed as producers and require the installation of substantial amount of equipment. It was on this basis that order M-68 proved acceptable to the War Production Board at the time of its issuance. Actual results to date of operations under the order indicate that the rate of drilling is within 2 percent of the above estimate.

If the materials situation, particularly that portion of it involving steel, had remained unchanged during the period subsequent to the

[ocr errors]

issuance of order M-68, it is probable that the present order would continue to produce satisfactory results. Actually, however, as you people know full well, the demand for steel has increased manyfold in other phases of the war program. At the present time, the situation is so critical that we are faced with the need to reduce the consumption of materials by the industry even further. Certainly, in view of these conditions, now is not the time to be considering a relaxation of drilling restrictions to the point of returning to virtually uncontrolled operations.

Contrary to the apparent belief by some that drilling has been completely stopped in Illinois, well completions in that State during the first half of 1942 totaled 891, approximately 55 percent as many completions as in the first 6 months of 1941. Nearly 30 percent of the total 1942 completions have been wildcat wells, whereas for the total United States only 14 percent of the total completions are exploratory wells. In the week ending June 27, 46 wells were completed in the State, of which 19 were wildcats.

The reduction in drilling in Illinois has been relatively greater than for the United States as a whole because of the deficiency of new field discoveries that may be developed. Fortunately, the ratio of wildcatting to total completions in Illinois has been relatively high during 1942.

Your committee is presently considering a proposed amendment to H. R. 6999. This amendment proposes that restrictions on the drilling of oil wells to depths of less than 3,300 feet be relaxed. In 1941, approximately 75 percent of the total number of wells drilled were shallower than 3,300 feet. Under the provisions of the proposed amendment or a similar measure, it is inevitable that virtually the same drilling density as prevailed prior to the restriction would again prevail. If the rate of drilling should be permitted to return to the level existing prior to order M-68, the consumption of steel to equip the additional wells would increase by the staggering figure of 500,000 tons per annum.

Senator VANDENBERG. How would they get the steel?
Mr. KNOWLTON. They probably would not get it. That is the point.
Senator VANDENBERG. That ends the argument, does it not?

Mr. KNOWLTON. That is true. However, it would disperse the steel to certain areas that would probably not represent the maximum requirements for that amount of steel.

The added expenditure of steel involved in the proposal cannot be justified in terms of the additional oil that would be made available, and it would soon result in a dire shortage of materials that will be necessary to provide orderly development of new fields as they are discovered throughout the country from time to time.

The fact that the additional or more dense drilling in already developed fields, as proposed by the amendment, would not result in commensurate sustained increases in oil productive capacity is clearly exemplified by the development and production history of Illinois fields.

The attached chart shows the rapid decline in Illinois production during the latter part of 1940, when there were no restrictions whatsoever on drilling. This decline was halted and the production trend reversed only through the discovery of new fields and reserves as will be seen upon examination of the chart. As a result of excessive rates of production and lack of large new discoveries, a second decline in Illinois production began in the latter part of 1941, still prior to any restrictions on drilling. Production has steadily declined from the peak of 425,000 barrels per day reached in 1941 to just under 300,000 barrels per day recently. We estimate that unless entirely new fields not now known are discovered, production of Illinois will continue to decline (substantially without regard to how many wells are drilled in currently known fields) to approximately 205,000 barrels per day by January 1, 1943; to 135,000 barrels per day by January 1, 1944, and to 100,000 barrels per day by January 1, 1945. It is to be noted that this estimate of the decline that may be expected in the production of presently known Illinois fields checks quite closely with an independent estimate made by the Illinois Geological Survey on the basis of the same desnity of development as prevailed prior to order M-68. The latter estimate in fact shows a somewhat more rapid decline than the O. P. C. estimate.

The entire history of the production branch of the petroleum industry shows conclusively through experience that the maintenance of an adequate sustained supply of crude petroleum depends upon and requires (a) discovery of new fields and reserves at a rate at least equal to the production or withdrawal from presently developed fields, (6) orderly development of new fields as discovered, and (c) orderly production of all fields and avoidance of wide-open or capacity production such as has characterized the operation of many fields, both past and present. The effect of unnecessary, excessive, and unwarranted drilling of any fields is simply to work in direct opposition to these principles. Obviously, during a period of shortage of materials with which to conduct oil-production operations, it becomes especially necessary to direct the expenditure of the available equipment to the most advantageous uses if an adequate sustained supply of petroleum is to be provided.

I will introduce this chart, which shows the production in Illinois during different years. This was all before order M-68 went into effect. Order M-68 has had many abuses heaped on it that I do not believe have been justified, and this is one of them. The production in Illinois went up to a peak here [indicating on chart], and it dropped rapidly. Then they found deeper types of Devonian. That brings the curve up, and then it starts down at practically the same slope. That was before the restrictions of M-68 went into effect.

M–68 took hold right in here (indicating on chart], and it shows å rapid decline before M-68 went into effect.

The lower line is a line of estimate of the Illinois Geological Sur vey which was made on the basis of unrestricted drilling such as they had in the past. It shows this precipitous decline in Illinois [indicating), without any regard to M-68 or any other restrictive drilling. Our estimate was above that. It shows that this curve is following the estimate made by the Illinois Geological Survey without any consideration paid to restriction on drilling.

So that the point is that you are going to have that precipitous decline in Illinois production unless you find some new fields.

(The chart referred to and submitted by the witness was filed with the subcommittee.)

The statement was made yesterday by Mr. Swann, I believe, that we were not making it attractive for the drilling of wildcat wells.

[ocr errors]
« PreviousContinue »