Geological Survey recommended an area of some 38,000 acres in Elk Hills, Kern County, Calif.

Accordingly, President Taft issued an Executive order, dated September 2, 1912, creating Naval Petroleum Reserve No. 1.

The only private owner of lands inside the reserve was the Standard Oil Co. of California. Standard adhered to an understanding with the Navy to the effect that neither would drill any wells inside the reserve without 6 months' notice to the other.

Pursuant to this understanding, Standard's lands within the reserve continued to be largely undeveloped and unproduced.

A certain portion of the Elk Hills field, however, which was then outside the limits of the reserve, was produced under normal commercial practice. It was therefore necessary for the Government to issue strip leases within the reserve and bordering the competitive production, in order to protect the Government land from drainage of oil.

Under these circumstances, by 1942 some 153 million barrels of oil and a large volume of gas were produced from the eastern part of the shallow oil zone, the so-called old area.

On October 15, 1942, President Roosevelt signed an Executive order enlarging the limits of the reserve to the east to include the lands which had been produced in the past and which were on the known geologic structure of the shallow oil zone.

By the act of June 17, 1944 (Public Law No. 343, 78th Cong., 2d sess.), the Navy was granted congressional authority to enter into a unit-plan contract with Standard for unitization of the reserve. On June 19, 1944, the unit-plan contract, authorized by Congress and approved as to its legality by the Attorney General prior to its execution, was entered into with Standard. By the terms of the contract, the entire reserve is operated as a single property or unit in which Navy and Standard are the only participants. Under the contract, Navy acquired absolute control over the rate of exploration, development, and production.

Naval Petroleum Reserve No. 1, as provided in the act of June 17, 1944, can be produced for emergency use pursuant only to legislation or joint resolution of the Congress. Emergency production from Elk Hills was authorized during 1944 and 1945; a production rate of 65,000 barrels per day from the shallow oil zone was attained in 1945. Following the war the production was reduced and has been held at the minimum necessary to develop and maintain the field in a state of readiness to produce in substantial quantities when authorized by the Congress and to protect the reserve against loss of oil. This production has, of course, been regularly reported to this committee. There is currently being produced for such purposes a total of approximately 7,800 barrels of oil per day from the shallow oil zone.

The current allocation of the production from the shallow oil zone is approximately eight-ninths to Navy and one-ninth to Standard. The history leading up to this situation is as follows: Pursuant to the terms of the contract, production of 15,000 barrels per day was authorized during a primary period, all accruing to Standard's account. In 1945, after the close of hostilities, the rate of production was reduced from 65,000 barrels per day to 15,000 barrels per day; and in April 1946, by order of Secretary of the Navy John L. Sullivan, the rate was further reduced to 8,450 barrels per day. Production since

By the terms of the contract, during the primary period, all oil initially produced was received by Standard, who thus received during the primary period approximately 28,000,000 barrels of oil.

This primary period ended on August 2, 1950. At that time other provisions of the contract then came into effect, whereby Navy then obtained its participating share of the oil, or approximately 67 percent plus two-thirds of Standard's share, or 22 percent, thereby giving to Navy approximately eight-ninths of the oil currently being produced. The production now being recommended would, pursuant to the terms of the contract, be shared in similar fashion, approximately eight-ninths becoming Navy's share and the remaining one-ninth going to Standard.

Such allocation of the shallow-oil-zone production would continue until Navy and Standard are in balance in receipt of production, at which time they would share according to their participating interests; i. e., approximately two-thirds to Navy and one-third to Standard.

The unit-plan contract established an Operating Committee, composed of one Navy member and one Standard member, and an Engineering Committee, consisting of three Navy members and three Standard members.

These committees, as part of their duties under the contract, have kept the shallow-oil-zone readiness program under continual scrutiny and have revised the program during the past 7 years as warranted by new information and data. Acting with their advice and that of the Director, Naval Petroleum Reserves, the Secretary of the Navy has limited the production to the minimum necessary to maintain a ready and substantial productive capacity from the field and at the same time to prevent the loss of oil, as provided in the contract.

The Engineering Committee, as a result of their continuing study of the reservoir problems in the shallow-oil zone, came to a unanimous conclusion in the summer of 1952 that it is necessary to make a substantial increase in the rate of production from the shallow-oil zone in order to maintain the availability of productive capacity and to obtain maximum, economic, ultimate recovery of oil, as provided in the contract. I reviewed this matter with the Secretary of the Navy under the previous administration, and he concurred in the recommended increase in production from the shallow-oil zone. He was also advised by the Judge Advocate General of the Navy that he had an obligation under the terms of the contract to authorize the increase in production. The Secretary had caused to be made, about that time, a review of the operations of the naval petroleum reserves by the Industrial Survey Board, which operates under the Navy's Inspector General. Because of the special nature of the review, the regular Navy members of the Industrial Survey Board were joined by a distinguished group of civilian experts representing various phases of the oil industry. The Board reported to the Secretary that the engineering advisers upon whom we have relied are thoroughly competent in their field.

The Secretary thereupon, by letters of August 15, 1952, reported the matter to the chairmen of the Committees on Armed Services. I shall quote the pertinent paragraph from said letters. [Reading:]

Based upon the advice received, and subject to any consultation that you may desire, the Secretary of the Navy therefore proposes to authorize the additional

other additional production, if after due consideration it is found that such production is justified for similar engineering reasons. Such production, when authorized, would be subject to continued review, and production would be reduced if allowed by sound engineering principles.

A conference was held on the matter on September 5, 1952, with certain members of the House Armed Services Committee. We subsequently received advice that the chairman of the committee desired to have a hearing on the matter before the committee in the 83d Congress. The Navy accordingly did not act on the recommended increase in production, but has deferred action pending further consultation with the Armed Services Committees.

In the ensuing time the Engineering Committee has continued to study the problems in the shallow oil zone and has reworked its recommendations in the light of the latest engineering information available.

The committee has just completed a comprehensive report on the subject entitled, "Review of State of Readiness Program, Shallow Oil Zone, 1945-52, Recommended Programs for Future Operation with Particular Reference to Present Losses of Availability and Ultimate Recovery." Copies of the report have been distributed to the members of this Committee on Armed Services. The report as it now stands recommends an increase in production of 18,100 barrels of oil per day from the shallow oil zone. One program of the report, namely the SS-2 and M on the south flank, is still under study and is pending results of testing now going on in the field.

The Secretary of the Navy in the administration of the naval petroleum reserves has relied upon the services of recognized consultants in petroleum engineering and geology. The services of the firm of DeGolyer & MacNaughton have been utilized for many years on naval petroleum reserve matters and, in particular, with reference to Elk Hills. The firm of Stanley, Stolz, & Dodson also has been consulted for a long time on problems pertaining to Elk Hills.

Mr. G. E. Woodward of the firm of DeGolyer & MacNaughton has participated for a number of years in the meetings of the Elk Hills Engineering Committee and is well acquainted with the technical aspects of the reservoir problems in the shallow oil zone. I have asked him to make a statement to the committee explaining the engineering aspects of the recommended increase in production. I have present other technical advisers whom I did not plan to have make a formal statement but who will be available to answer questions.

I will, of course, be available, to answer any questions that the Committee may have concerning the contractual aspects of this

matter.

With the chairman's permission, I would like to have Mr. Woodward present his statement.

The CHAIRMAN. What is our problem? The fact is, we are losing oil at the present time; are we not?

Captain MEADE. Yes, sir. We understand there are 5,000 barrels a day of oil being lost by becoming irrecoverable.

The CHAIRMAN. Unless it is drilled immediately, it will be irretrievably lost.

Captain MEADE. Yes.

The CHAIRMAN. By escaping and also by water contamination. Captain MEADE. There are two processes which will be explained

of water into oil sands, on one side of the field, and on the other side a movement of the opposite effect.

Each of these is such that it produces a loss of irrecoverable oil. The CHAIRMAN. Are you and the representatives of Standard Oil in agreement on this?

Captain MEADE. Our engineers, 3 of them representing the Navy, and 3 representing Standard, have submitted a report, which is before you, and signed by all of them, representing their agreement as to the summation of the problem, and the solutions recommended. The CHAIRMAN. What is the Navy's recommendations?

Captain MEADE. The Navy's recommendation is to-may I suggest, sir, that would be well presented by Mr. Woodward in his technical presentation?

The CHAIRMAN. I should think that you, the Director of the Naval Reserves, are the one to tell us what the Navy recommends. Captain MEADE. Yes, sir.

The CHAIRMAN. You are the chief. You are No. 1 man here. We want to know what you recommend to this committee.

Captain MEADE. Yes, sir.

The CHAIRMAN. Which is the wise thing and the economical thing?

Mr. GAVIN. Mr. Chairman, may I ask this question? I just want to clarify "the Standard." When you say "the Standard," who do you mean?

The CHAIRMAN. Standard of California.

Mr. GAVIN. Is it only the Standard of California?

Captain MEADE. Yes, sir. The Standard Oil Co. of California, is our partner in this unit operation.

The CHAIRMAN. We want to do what is best for the country, particularly from the standpoint of national defense.

Captain MEADE. Yes, sir.

It is my recommendation, sir-which as you have been advised has not yet been passed upon by the present Secretary of the Navy, although the report is before him-that the recommendations of the Engineering Committee, as contained in this report, be adopted. The CHAIRMAN. Are there any questions?

Mr. VINSON. Mr. Chairman, I would like to ask a question.
The CHAIRMAN. Mr. Vinson.

Mr. VINSON. What is the effect of the recommendation?

Captain MEADE. The effect of the recommendation, sir, will be to require the drilling of approximately 39 wells in the shallow zone. Mr. VINSON. Who pays for those wells?

Captain MEADE. The cost will be shared by the Navy and Standard, sir.

Mr. VINSON. It will require 39 additional wells?

Captain MEADE. Yes, sir.

Mr. VINSON. That will make a total then of seven hundred odd wells in the shallow zone?

Captain MEADE. That would bring it up now to a total of 680 plus 39, which would be 719, sir.

Mr. VINSON. 719 wells will then be drilled in Elk Hills?

Captain MEADE. That is in the shallow zone, sir.

Mr. VINSON. In the shallow zone.

Mr. VINSON. Then the recommendation of the Navy Department is that they will drill 39 new wells. What will those 39 wells cost? Captain MEADE. Approximately $1,500,000, sir.

Mr. VINSON. $1,500,000?

Mr. COLE. Each or all?

Captain MEADE. All of them-total.

Mr. VINSON. The average depth will be about 3,500 to 3,600 feet? Captain MEADE. Yes, sir.

The CHAIRMAN. How much oil will they produce? What will be your maximum production after drilling these 39 wells?

Captain MEADE. After drilling these wells, producing them in the manner recommended, and increasing production in existing wells, there is thereby contemplated in this report 18,100 barrels per day increase.

Mr. VINSON. If added to that the 6,200, that would be 24,300 barrels daily.

Captain MEADE. Yes, that is substantially correct.

Mr. VINSON. My recollection was the former Under Secretary recommended a total production, including this increased production, of about 30,000 barrels?

Mr. SMART. 24,500 net increase, Mr. Vinson.

Mr. VINSON. 24,000 net increase, making a total production of around 30,000 barrels.

Mr. SMART. 30,700.

Captain MEADE. He approved two of the items in this report, and such others as he could later accept, and at that time the engineering committee contemplated that they were talking in terms of 30,000 barrels a day production; yes, sir.

Mr. VINSON. So the committee can understand now, you are recommending to the new Secretary of the Navy that the increased production will be brought about in the amount of 18,000 barrels by the drilling of 39 wells?

Captain MEADE. Yes, sir; plus the increased production of certain existing wells.

Mr. VINSON. All right.

Now, what is the increased production of certain existing wells? What does that amount to?

Captain MEADE. That is included within the 18,000.

Mr. VINSON. Well, then, the committee can understand that this increased production will only amount to, in total sum, 18,000 barrels? Captain MEADE. Yes, sir, on the basis of our present recommendations.

Mr. VINSON. And you submitted that to the Secretary?
Captain MEADE. Yes, sir.

Mr. VINSON. And the Secretary is studying that now?
Captain MEADE. Yes, sir.

Mr. VINSON. And he has not yet reached a decision regarding that?
Captain MEADE. So I understand, sir.

Mr. VINSON. How long will this increased production of 18,000 barrels be required to protect the field from the migration and infiltration?

Captain MEADE. To a certain extent, Mr. Vinson, the production