[The following letters were subsequently received for the record:] Mr. W. R. MORAN, U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Vice President and General Manager, Minerals Exploration Company, Union Oil Center, P.O. Box 5495, Los Angeles, Calif. DEAR MR. MORAN: Reference is made to my letter of September 22, 1977 and your reply of September 30. During hearings held on October 14, 1977, Mr. John Atkisson, Subcommittee counsel, questioned Mr. William Murphy, President, Fremont Energy Corporation concerning his cost estimates of assessment work performed on certain uranium lode mining claims in the Red Desert area of Wyoming by your company, Getty, and Mobil. Mr. Murphy's estimate for the work done by Union Oil was $500,000; whereas, the figures you furnished totaled $165,781 for drilling and logging 126 holes, or 59,360 feet, on the DM, Mat, and Rob claim groups. Thus, your figures indicate a cost of about $2.79 per foot during the period when the work was accomplished, May 1969 to August 1971. Questioned about the disparity in the figures, Mr. Murphy indicated that his estimates were based on his knowledge of the industry's current cost of around $6 per foot for drilling and geologic evaluation. He stated that the figures furnished by Union, Getty, and Mobil were "merely a mistake" and that "the information is coming from the wrong man who is not aware of his total cost of his exploration efforts." The hearing record is being held open until November 23, 1977, for clarification of this letter, and we would appreciate your comments concerning Mr. Murphy's statements about the accuracy or your figures. For your assistance, enclosed is a copy of the pertinent portion of the hearing transcript relating to the_colloquy between Mr. Atkisson and Mr. Murphy, together with a copy of Mr. Murphy's affidavit containing his cost estimates. Sincerely, Hon. JOHN E. Moss, JOHN E. Moss, Chairman, Subcommittee on Oversight and Investigations. MINERALS EXPLORATION COMPANY, Chairman, Subcommittee on Oversight and Investigations, House of Representatives, Washington, D.C. DEAR SIR: This is in reply to your letter of November 2, 1977, concerning the testimony of Mr. William Murphy, President, Fremont Energy Corporation, concerning his cost estimates of assessment work performed by Union's subsidiary Minerals Exploration Company on certain uranium lode mining claims. Your letter has just reached me as this is my first day in the office after an overseas trip. Concerning the questions you raised, please be advised as follows: Union's figures for assessment work of $165,781 for drilling and logging 126 holes (59,360 feet) on the DM, Mat and Rob claim groups (the only groups among those listed by you in your letter of September 27, 1977, in which we had interest) are correct. This work was accomplished between May, 1969 and August, 1971, at a cost of approximately $2.79 per foot. Mr. Murphy stated in his affidavit that Union performed $500,000 worth of assessment work on these claims during the period they were held by Union. Only $76,600 assessment work was necessary each year on these claims, so obviously nothing like $500,000 worth of work was required. Mr. Murphy states that his estimates were based on industry's current cost of around $6.00 per foot for drilling and geologic evalution. Bear in mind that our figures involve assessment work done prior to August, 1971. We wish to stress the dates during which this work was done. We expended nothing on the claims in question after August, 1971. The only additional sums that Union expended which were not included in the figures furnished you was a $10,000 overhead charge which was charged to PetroNuclear, Ltd. (predecessor in interest to Silver Bell) to cover home office and similar expenses. This amount was not included in assessment affidavits because, in our opinion, overhead should not properly be considered assessment work under the 1872 Mining Act. In any event, this would add only about $16,000 to total expendi tures. Union's figures were not "merely a mistake," and the information furnished you was compiled by Minerals Exploration Company's Vice President and Administrative Services Manager, who were directly responsible for budgeting and conducting the exploration and recording the assessment work in the Company accounts. With respect to Mr. Murphy's statement [Exhibit 6 dated September 19, 1977, p. 2, paragraph 5(b)] "Neither Fremont nor I am in possession of the accounting data which comprise this figure . . under the Agreement of May 9, 1969 between Petro-Nuclear, Ltd. and Minerals Exploration Company, Petro-Nuclear had the right of audit. Audits of our books were made in our Los Angeles offices personally by Mr. Murphy and his attorney, Thomas J. Constantine, on October 27, 28 and 29, 1970; June 2, 1971, and July 6, 7, and 8, 1972. I trust this answers the questions raised in your November 2, 1977, letter. If we can be of further assistance please let us know. Sincerely yours, W. R. MORAN, Vice President and General Manager. Mr. ATKISSON. You will find on page 3 of that document for the claims here in question, a total expenditure of $165,781. It is not quite so far a cry but nevertheless a pretty healthy cry from $500,000, wouldn't you agree? Mr. MURPHY. May I point out one thing? Mr. ATKISSON. Certainly. Mr. MURPHY. I believe Getty Oil itself has presented papers at professional meetings in recent years that would indicate their exploration costs for uranium in Wyoming are running very near the figure of $6 per foot that I put forward. Mr. ATKISSON. Can you imagine any of these three large oil companies would want to lie to us about this? Mr. MURPHY. They are not lying. It is merely a mistake. The information is coming from the wrong man who is not aware of the total cost of his exploration efforts. Mr. ATKISSON. By the way, the figures that you mention that Getty itself has presented around the country-and I know they have-represents costs now, do they not? We are talking about costs or a long time ago-like 7 or 8 years. We are also talking about very specific claims. These oil companies asked their accountants to figure out how much money of this required assessment work was actually spent on specific claims. Unless the accounting methods themselves are completely askew, then I don't know about it. All the companies have responded and they have all responded with figures egregiously below the figures you included in your affidavit. Mr. MURPHY. I grant you that. My figures certainly were presented in the light in which I calculated them. There is no misrepresentation there. Certainly they are subject to correction. Mr. ATKISSON. I appreciate that. I am not suggesting that you were doing anything like that. You qualified the figures when you presented them, but I wanted to point out that you indicated that about $1.3 million had been spent by those three companies alone. It actually turns out to be roughly a quarter of a million dollars. There is really quite a difference. I would like to also turn to one other item in your affidavit. That is the first one. You indicate that Petro-Nuclear, Ltd., spent $576,000. 99-374 078 12 In this instance I take it your estimate is not quite so rough, otherwise it would be $575,000. Mr. MURPHY. I have some recollection of that particular item which was an accounting item when Petro-Nuclear disposed of the claims. Mr. ATKISSON. Do you have anything to do with Petro-Nuclear? Mr. MURPHY. I was president. Mr. ATKISSON. I will quote for the record a communication to the staff from Mr. Eugene Stevens. By the way, Mr. Eugene Stevens is part of Petro-Nuclear, isn't he? Mr. MURPHY. He was. He was a substantial shareholder and was a member of the board of directors throughout its existence. Excuse me, let me correct that-for the last several years of its existence he was. Mr. ATKISSON. This is the same Eugene Stevens that has come up from time to time today. Mr. MURPHY. Yes. Mr. ATKISSON. The communication from Stevens reads as follows: I was on the board of directors of Petro-Nuclear up until it merged with Silver Bell Industries in 1972 and never heard of any such expenditure. This is in reference to the $576,000. And furthermore, I believe that an examination of Petro-Nuclear's books and bank accounts will show that it never had anything like that much money and certainly did not spend it on assessment work on those Red Desert claims. I would like for you to comment on that. Mr. MURPHY. Mr. Stevens is quite senile now. He has demonstrated time after time-I would like to document that. I do not have it in my possession at the moment. I didn't think it important. I don't know if it is recoverable but that was an actual audited figure. My recollection is that Petro-Nuclear spent $4 million directly through its own hands in exploration on public domain and joint ventured with other people who spent many millions more. These can be documented. Mr. ATKISSON. May I ask that you supply this material for the record, and I will ask the Chair to hold open the record at this point, pending receipt of the documentation. Mr. MURPHY. I will attempt to recover it. Mr. ATKISSON. I will state also for the record that the staff has visited with Mr. Stevens and they did not find him senile. Mr. LUKEN. Without objection, the record will be held open to receive the information from Mr. Murphy. [The following statement and document was received for the record:] [No documentation was supplied by Mr. Murphy to support the alleged expenditure of $576,000 by Petro-Nuclear, Ltd. on the Red Desert claims in question. However Mr. Murphy submitted, as the most relevant document, a letter to shareholders, dated October 31, 1972, which makes only general reference to historical expenditures by Petro-Nuclear, Ltd., and others in the five western States. The document follows:] Letter to Shareholders: ་ During the past your the future demand for uranium as an "environmentally clean" rource of fuel for the generation of electric power has graphically come into focus for all segments of society government, industry, and the thinking public. A thorough review of all technology, environmental impact studies, and feasability studies of alternate fuels have essentially resolved the fears raised concerning radioactive and thermal pollution and culminated in the resounding choice of nuclear power to supply us clean, safe, and adequate generating capacity for a substantial portion of the free world power requirements through the year 2000 AD and beyond. Your company over the past six years, confident of uranium's future role as a fuel for electric power generation, has been mong those companies in the forefient of the exploration effort to find and develop sources of uranium. Vast areas of continental United States were explored. Approximately 500,000 acres of mining claims in Wyoming, Colorado, Utah, New Mexico and California were selected and acquired for more detailed exploration. Your company, through its independent efforts, has spent in excess of $4,000,000 in acquiring and evaluating this acreage. Other companies in joint venture with Petro-Nuclear Ltd. or participating in farm-out arrangements on Petro-Nucleur groperty have expended several additional millions of dollars in our exploration effort. As property evaluations progressed, the less promising prospects were disposed of or written off as a cost of exploration. Such write-offs are reflected in our financial statements as operating losses. In August, 1972 Fetro transferred mining claims in this catagory approximating 160,000 acres to its subsidiary Silvertip Exploration Company and sold Silvertip Exploration Company to Front Range Oil & Uranium of Denver, Colorado for nominal consideration. This disposition of property, along with other abandonments, resulted in write-offs of $76,598 for fiscal 1971 and $410,315 for the first eight months of fiscal 1972. In a similar vein, on March 10, 1971 Petro sold 17,000 acres of mining claims to Pollution Control & Engineering Co. of Casper, Wyoming for 350,000 shares of its investment stock. This stock was placed on Petro's bocks at $213,750, the quoted bid price on the OTC market on date of closing. Since that date PC & E is no longer quoted by securities dealers and the company has been unable to determine a carrying value for this security. In September, 1972 the company decided to write down the carrying value of ils 350,000 shares of PC & E to its par value of 1¢ $3,500. This action will also reflect as a loss of $215,250 on the 1972 financial statements. PROPERTY The 130,000 plus acres remaining in Petro-Ruclear Ltd. after this rigorous selection, have been subjected to extensive exploration. Several areas which contain impotant reserves have been delineated by close space development drilling. Notwithstanding the development delay recently experienced by the uranium industry, the management and staff of your company are enthusiastic regarding our exploration results and the possibilities of soon attaining significant production. A brief recap of exploration results is as follows: New Lesen ves were added to an old mining district at A new and significant mineral trend was developed in the Shirley Basin mining province of Wyoming. As previously announced, a total of 1,500 holes were drilled on the AB clairs in Shirley Basin. This drilling outlined a mineralized brand two miles long by 1,500' wide. Depth of mineralization varies from outcrop to 290′ in depth. Studies by the company's staff indicate that large portions of this trend can be mined profitably. Substantial capital investment will be required to put this property into production and arrangements to market the U30g will have to be finalized. During 1971 and 1972 work on these claims consisted of additional coring, metallurgical studies, and revision of econonic analysis by the company's staff. Plans to market the 30 from this deposit and arrangements to finance production facilities have not yet been completed. 3 JOINT VENTURE WITH MINERALS EXPLORATION COMPANY: A) RED DESERT, WYOMING A large new uranium province was discovered in the central Great Divide Basin or "Red Desert" area of Wyoming and is being developed in joint venture with Minerals Exploration Company (a wholly owned subsidiary of Union Oil of California). Mexco has purchased a 15% interest in the venture and under the terms of the agreement has the right to acquire an additional 50% interest. A total of over 2,000,000 lineal feet of drilling has encountered several trends of mineralization with a total length in excess of 20 miles. One mile of trend designated the ARE area was selectively drilled to a 50' center grid pattern. An additional 4 miles of trend designated the CRE area has been drilled to a 200' center grid pattern. Overburden on the ARE-CKE mineralization varies from 0' at outcrop to 230'. There is geologic evidence to presume that this trend will continue across Petro property within stripping range. This presumption can only be affirmed by additional drilling. the average grade of these deposits is relatively low, the impressive thichnesses indicate good grade thickness with moderate overburden. The balance of the mineralized trends encountered thus far are drilled at such wide spacing that Although |