Subsequently, regulations were issued by the Department of the Interior requiring each permittee to file in the Department a unit or cooperative plan, including his permit with other lands, or suffer cancelation. Approximately 2,000 plans were filed with the Department of the Interior and, because of the small available force to examine and dispose of same, a large percentage of the unit plans were not reached for approval or rejection until 1935 or 1936. During the early part of the year 1935 a proposed amendment of the Oil Leasing Act was pending before Congress, and there was uncertainty as to what provisions would be made with respect to existing permits. This legislation was enacted August 21, 1935, and prohibited the issuance of any more oil or gas permits, substituting therefor leases with a minimum royalty of 12% percent in lieu of the 5 percent royalty fixed by the act of 1920 for one-fourth the area of prospecting permits. Section 1 of the act extended existing permits to December 31, 1937, and gave the Secretary of the Interior authority to extend permits on which diligence had been exercised or prospecting suspended to December 31, 1938. By order of September 22, 1936, the Secretary announced that all pending permits where stipulations and a unit plan had been submitted were extended to December 31, 1937, but that all permits would be canceled on that date unless (1) discovery had been made on the permits; (2) the lands included in an approved unit plan, or (3) the permit had been converted into a lease under the act of August 21, 1935. It is quite apparent from the foregoing that since 1929 permittees and those holding operating agreements with them have been, for a large part of the time, in a state of uncertainty as to whether to proceed with large expenditures in exploring for oil and gas. In other words, for a part of the time they were expressly prohibited from drilling and for another substantial part of the time were uncertain as to the status of their permits or as to whether unit plans when submitted would be approved, or whether if they started drilling and other development work they would be permitted to finish same and be entitled to the benefits of the act of February 25, 1920, including the 5-percent royalty. A large percentage of the unit plans which have been submitted under the requirements of the Interior Department have been rejected either because the Department officials believed there was no probability of discovering oil or gas or because permittees were unable to secure the joining of such areas of State or privately owned lands as the Department insisted should be included in the proposed units. Permittees also believed that the Secretary of the Interior, in cases where they had equities, had exercised diligence, or where drilling had been suspended, would grant a further extension to December 31, 1938, under the act of August 21, 1935. Consequently these permittees and their operators have really not had free and unrestricted opportunity for a substantial period of time to prospect and drill the lands in these permits. It must be borne in mind that wildcatting is an uncertain and expensive business. It involves very large expenditures of money, sometimes $250,000 for a single well, is subject to delays incident to accidents in the drilling operations, etc., and involves the expenditure of private moneys at absolutely no cost or risk to the Department of the Interior or Government of the United States. These permittees and operators confer a public benefit by exploring vacant public lands and determining their geology and the existence or nonexistence of oil, gas, and other minerals therein. They should be accorded liberal treatment and given ample time and a reasonable reward if successful. The public at large and the Government stand to gain by such equitable treatment and not to lose. It seems quite evident that fairness to the permittees and operators and the public benefit to be secured from additional prospecting on these existing permits will be served by the enactment of H. R. 4277, providing for further extension of existing oil and gas permits. The hearings disclosed that if this bill is not passed it will not only work a hardship upon many persons who have done valuable work upon the public domain but will also result in an uneconomic production of oil which will add to an already overburdened market of that product, and that the passage of the bill is in the interests of conservation and orderly development of mineral resources. Herein below set forth is the report of the Secretary of the Interior on this legislation. Hon. RENÉ L. DEROUEN, THE SECRETARY OF THE INTerior, Chairman, Committee on the Public Lands, House of Representatives. MY DEAR MR. DEROUEN: By letter of February 20 you submitted a copy of H. R. 4277, entitled "A bill to provide for the extension of certain prospecting permits and for other purposes", with request for a report on the bill for your committee. Permits to prospect for oil and gas were authorized by the act of February 25, 1920 (41 Stat. 437), to be granted for periods of not exceeding 2 years, and several subsequent acts authorized extensions of time of the permits. By the act of August 21, 1935 (49 Stat. 674), the permit system was abrogated, and it was provided that no prospecting permits should be issued except on applications filed 90 days or more prior to the date of the act, and that prospecting for and development of oil and gas deposits belonging to the United States should be done under leases requiring payment of a minimum annual acreage rental prior to production and a minimum of 121⁄2 percent royalty on the production. This act further provided that all outstanding permits theretofore extended be extended to December 31, 1937, subject to the conditions of prior extensions, and authorized the Secretary of the Interior to extend further any permit on which diligence has been exercised to, but not beyond, December 31, 1938; also, that any permittee, prior to the expiration of his permit, may exchange the same for a lease under the amendatory act. In my report to the President for the fiscal year 1936, I stated: "The act of August 21, 1935, constitutes an important forward step in the leasing policy for oil and gas that will reduce materially speculative operations using the public reserve as a base. It will also provide for a more businesslike development of the oil and gas resources of the public lands, and will result in a return to the Government of a proper share of the value of the mineral production. Under this act the proceeds of public-land mineral development will be returned to the States from which they are produced, in part, directly, for the support of schools and roads and in part, indirectly, through Federal construction of irrigation systems." acres. Of the several thousand permits issued there were at the date of the amendatory act over 6,000 outstanding. Over 1,700 permits have since been issued, making a total of about 7,800 permits embracing an estimated area of about 12,000,000 Of these, the initial term of 2 years of about 1,400 will not expire until the calendar year 1938, but the remainder range in age from 2 to 15 years or more. Probably more than 2,000 of the permits will have been extended to December 31, 1938, because included in approved unit plans or because of drilling or some other measure of diligence warranting equitable consideration. The remainder, about 4,400 unless converted into leases under the amendatory act will probably become subject to cancelation on December 31, 1937, because of failure to exercise diligence. It should be noted that under existing law all outstanding permits, including the 4,400 that may become subject to cancelation at the end of the present calendar year, may be extended for an additional 5 years by conversion into leases under the act of August 21, 1935, and that for the first 2 years of such extension no rental payment is required. This is a most liberal provision for permittees who have failed to exercise diligence through a period of 2 to 15 years. In the case of eventual discovery of oil or gas under such a lease the minimum royalty would be 121⁄2 percent instead of 5 percent on one-fourth of the area and 12% percent on the remainder, and to this extent the permittee would be penalized for delinquency while the land was held in permit status. This is fair and reasonable. The bill, H. R. 4277, would extend all outstanding permits to December 31, 1939, and authorize the Secretary of the Interior to extend further any such permit to December 31, 1940. Its passage would therefore serve to delay operation of the provisions of the act of August 21, 1935, as to lands now under permit and to extend the undesirable features of the permit system without regard to whether prospecting has been done or any other sort of diligence exercised. In effect, it offers a premium to those who, through a period of years have been dilatory or negligent and have made no effort to fulfill the obligations assumed on acceptance of a permit. This is unreasonable. Furthermore it is unfair to those who have in good faith proceeded with development, to those who are willing and anxious to proceed with development under the act of August 21, 1935, and to the citizens generally who, through use of proceeds for schools, roads, and reclamation, are the beneficiaries of the leasing laws. It should be understood that the act of August 21, 1935, has been generally accepted by citizens of the United States and is in active operation. By January 1, 1937, more than 3,000 applications for lease under its terms had been filed and a considerable number of leases have now been issued. Substantial acreage bonus has been offered and accepted for the opportunity to take a lease under its terms in a structural area proved to be productive of only a few barrels per well per day.. But the best Government wildcat acreage is withheld from such filing, being in the hands of permittees under the original law many of whom neglect to prospect the land or to relinquish it. Only cancelation will clear the record and cancelation for failure to exercise diligence is merited and long overdue. By providing that no permit shall be extended beyond December 31, 1938, the amendatory act of 1935 gave notice to the holders of outstanding permits and those who had applications pending that they must either prospect the lands or exchange their permits for leases prior to that date. As this was approximately 31⁄2 years' notice, no one can complain that the notice was too short or that he is denied any rights if the mandate of this act is carried out. The provisions of the amendatory act were adopted because the permit system was unsatisfactory and because, under that system, the Government was not securing an adequate share of the production obtained from its oil and gas resources It was thought that the prospector should pay a small rental during the prospecting period, and that when he obtained production he should pay a royalty comparable to the customary royalty paid under oil and gas leases on State and fee lands. As the acreage now held under permits comprises the most promising unproven land, the enactment of this bill would in great measure annul the principal objective of the amendatory act to obtain more revenue from the Government oil and gas deposits for the benefit of reclamation and of the States' school and road funds. In the interests of the United States and of the States those permittees who have made no reasonable effort toward prospecting the lands by December 31, 1937, should be required to exchange their permits for leases at the higher royalty or suffer cancelation of their permits. All permittees who exercise diligence will be entitled under existing law to extension to December 31, 1938, and may continue prospecting after that date by exchanging their permits for leases. I recommend, therefore, that the bill, in its present form, be not enacted. The Bureau of the Budget, pursuant to a request by this Department, advised that it has no objection to the presentation of this report. Sincerely yours, (Signed) CHARLES WEST, Acting Secretary of the Interior. 1st Session No. 935 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES JUNE 4, 1937.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed Mr. DOUGHTON, from the Committee on Ways and Means, submitted the following REPORT [To accompany H. J. Res. 375] The Committee on Ways and Means, to whom was referred the joint resolution (H. J. Res. 375) to provide revenue, and for other purposes, having had the same under consideration, report it back to the House without amendment and recommend that the joint resolution do pass. Under existing law certain excise taxes become inoperative after June 30, 1937, certain others become inoperative after July 31, 1937, and certain others will continue to operate only at reduced rates or with increased exemptions after June 30, 1937. In addition, the rate on nonlocal, first-class mail matter will be subject to reduction from 3 cents to 2 cents after June 30, 1937. If the temporary taxes, and the temporary increased rates or decreased exemptions, and the temporary increased rate on nonlocal, first-class mail matter are permitted to lapse at this time, the Treasury faces a total annual loss of revenue estimated at nearly $650,000,000, as will be shown hereafter in this report. It is the opinion of your committee that the revenues provided by the temporary provisions above referred to cannot be spared at this time. In this connection, there are submitted the following letters, one from the Secretary of the Treasury and one from the Acting Postmaster General, pointing out the necessity for continuing these temporary provisions at this time: Hon. ROBERT L. DOUGHTON, TREASURY DEPARTMENT, Washington. Chairman, Ways and Means Committee, House of Representatives. MY DEAR MR. DOUGHTON: The annual Budget message of the President to the Congress, which appears in the Congressional Record under date of January 8, 1937, at page 125, contained the following recommendation: "Temporary miscellaneous internal-revenue taxes: I recommend that the Congress take steps by suitable legislation to extend the miscellaneous internal revenue taxes which under existing law will expire next June and July, and also to maintain the current rates of those taxes which would otherwise be reduced next June. I consider that the revenue from such taxes or its equivalent is necessary for the financing of the Budget for 1938." It was also recommended that the 3-cent postage rate for first-class mail other than for local delivery be continued. In his supplemental Budget message, which appears in the Congressional Record under date of April 20, 1937, at page 4670, the President pointed out that his expectation of bringing actual income and outgo for the fiscal year 1938 into balance was predicated on two highly important conditions, one of which is the extension of existing taxes which expire this year. In the light of these recommendations and in view of the Treasury's urgent need of the substantial revenues which these temporary taxes are producing and the fact that they will soon terminate by limitation unless extended, the Department recommends that appropriate action be taken to extend those taxes, which are about to expire, at the existing rates for a period of 2 years. It may be noted that a similar extension was accomplished 2 years ago by the enactment of House Joint Resolution 324, which for purposes of convenience was drafted in such manner as to cover the continuation both of the temporary taxes and the 3-cent postage rate. Sincerely, Hon. WILLIAM B. BANKHEAD, H. MORGENTHAU, Jr., POST OFFICE Department, Speaker, House of Representatives, Washington, D. C. MY DEAR MR. BANKHEAD: I wish at this time to bring to the attention of Congress the desirability of continuing the 3-cent rate of postage now applicable to certain first-class matter. It is estimated that if the 2-cent rate should be in effect during the fiscal year 1938 the Department's revenues would be between $80,000,000 and $90,000,000 less than at the 3-cent rate and that, consequently, there would be a net deficiency in the postal revenues of more than $100,000,000. This would, of course, have to be made up by funds raised by general taxation. In view of this situation and the fact that the cost of operating the Postal Service has been greatly increased through the establishment of the 40-hour workweek and other increases in the expenditures of the Departament, it is deemed most essential that the present 3-cent rate for first-class matter be continued at least 2 years longer. It has been ascertained from the Bureau of the Budget that this report is in accord with the program of the President. Very truly yours, W. W. HOWES, Acting Postmaster General. These temporary taxes and increased rates were provided for in the Revenue Act of 1932, many of the new taxes and rate increases being suggested by Secretary Mills. Your committee recommends that these temporary provisions be extended for a period of 2 years. The 2-year extension period is selected merely because it is not yet apparent that these additional revenues can be spared before the expiration of such a period. However, your committee recognized that many of these taxes are objectionable or contain objectionable features. But the extension of these taxes for a period of 2 years will not foreclose action on the part of Congress to remove them at an earlier date or to revise the same. In addition, the joint resolution extends to June 30, 1939, the power granted to the President under existing law to reduce the rates on |