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GENERAL REVENUE REVISION
(Natural Resources; General Discussions)

TUESDAY, JANUARY 21, 1958

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D.C.
The committee met, at 10 o'clock a. m., pursuant to recess, in the
hearing room of the committee, House Office Building, Hon. Wilbur
P. Mills, chairman of the committee, presiding.
The CHAIRMAN. The committee will please come to order.

The first witnesses this morning are Mr. Richard S. Kitchen, Senator Johnson, Fred L. Hartley, Mr. Lentz.

Are you appearing together, gentlemen?
Mr. KITCHEN. Yes; we are. I am Mr. Kitchen.

The CHAIRMAN. Mr. Kitchen, will you give your name, address, and the capacity in which you appear, for the record, and identify those who appear with you. STATEMENT OF RICHARD S. KITCHEN, CHAIRMAN, COMMITTEE FOR

OIL SHALE DEVELOPMENT, DENVER, COLO. Mr. KITCHEN. My name is Richard S. Kitchen. I am chairman of the Committee for Oil Shale Development, Denver, Colo. My address is 320 Equitable Building, Denver 2, Colo.

We are appearing with regard to House Joint Resolution 327 and companion resolutions.

The CHAIRMAN. Let me ask you how you desire to divide the 20 minutes assigned to you.

Mr. KITCHEN. I shall introduce the witnesses who will then appear in order.

The CHAIRMAN. You want the time divided among the four?
Mr. KITCHEN. Yes; we do.

The CHAIRMAN. In that case, I think it would be desirable if all of them come forward now. It will facilitate matters if you will identify all of them.

Mr. ROGERS. Mr. Chairman, may I file a statement in behalf of this legislation ?

The CHAIRMAN. Certainly, Mr. Rogers. We will be glad to receive your statement. Without objection it will appear in the record. STATEMENT OF REPRESENTATIVE BYRON G. ROGERS, OF

COLORADO Mr. ROGERS. My name is Byron G. Rogers, Representative of the First Congressional District of the State of Colorado, which is the city and county of Denver. It is a pleasure to appear with leading citizens of the western part of the United States and express the hope that this honorable committee will give serious consideration to and adopt the synthetic fuel depletion allowance.

The object and purpose of this legislation is to amend section 613 (b) and section 613 (c) (4) in the case of coal, oil shale, bituminous sand, gilsonite, and other natural deposits, when mined as a course of synthetic oil or gas-crushing, retorting, and other extraction processes necessary to derive oil or gas from the crude mineral product.

The United States Government has spent more than $17 million in developing a method of extracting liquid fuel from oil shale. The Congress of the United States has prohibited the United States Government from engaging in the production of liquid fuel from the oil shale and, in effect, has directed that it be carried on by private enterprise as the Government does not desire to engage in business. We are, therefore, confronted with the problem of how best to develop the natural resources of the United States. We all realize that in the event of a national emergency, oil and oil fuel are absolutely essential. We have many thousands of acres of land in the States of Colorado, Utah, and Wyoming, together with certain formations in the Eastern States, that can be developed.

The proper approach to this problem is to make it attractive to private industry that they prepare this oil for our national defense. While it is true the United States Government has spent millions of dollars in establishing a process for this extraction of oil from oil shale, coal, and other minerals, nevertheless private industry has been slow, because of the competitive conditions, to engage extensively in this field. In other words, private industry does not feel that they should expend millions and millions of dollars unless there is some incentive to assure that they would receive a fair return on their money and obtain a fair profit.

The progress and development of this great natural resource will depend on the action taken by this committee. We, of the West, feel it is only fair that private enterprise be given an opportunity to develop this natural resource and make it available to the Nation not only in the event of war but to keep pace with the expanding and growing economy of this Nation. The areas where these natural deposits are now located cannot progress unless special inducements are given to private industry. We, in the West, believe that fair and equitable treatment should be given these developers who are willing to risk their money.

I, therefore, urge that this committee extend its depletion allowance of 271/2 percent so as to encourage private industry to extract liquid fuel from coal, oil shale, bituminous sand, gilsonite, and other natural deposits. Our problem is how to best develop it and have it available to the people of the United States.

The CHAIRMAN. If you will identify the other three, then, for the purpose of the record.

Mr. KITCHEN. I will introduce three witnesses in addition to myself today.

The first witness will be former United States Senator Edwin C. Johnson, on my right.

The second witness will be Mr. Fred Hartley, the vice president in charge of research of the Union Oil Company of California, who will be sitting on my left.

The fourth witness will be Mr. Hover T. Lentz, Esq., attorney, Denver, Colo., who will present a technical amendment to the 1954 Revenue Code in the event the committee desires to use that method of action on these measures rather than the method of the House joint resolution as introduced.

The CHAIRMAN. Mr. Kitchen, I notice that I have some statements, one each from Senator Barrett, Senator Allott, and our colleagues, Mr. Aspinall and Mr. Chenoweth. I assume that they want their statements to appear in the record along with Mr. Rogers. Is that your understanding?

Mr. KITCHEN. Yes, sir. The CHAIRMAN. Without objection they will appear in the record. (The statements referred to are as follows:)

STATEMENT OF SENATOR FRANK A. BARRETT, OF WYOMING

Mr. BARRETT. Mr. Chairman, let me take this opportunity to urge your committee to report favorably on House Joint Resolutions 327, 328, and 329.

It seems to me that the depletion rate for oil shale and coal, when processed for the extraction of liquid fuel, should be the same as depletion rates now allowed for oil and gas wells. In my opinion, this is a logical step that must be taken if we are to insure fullest development of our natural resources.

I cannot urge you too strongly to favorably consider granting the newly developing oil shale industry and the old established coal industry the same tax provisions which have made it possible for our Nation to efficiently and effectively develop its oil and gas resources.

In the past 15 years, the consumption of petroleum has doubled, and there is reason to believe the demand will continue to increase steadily. Since the domestic petroleum industry has already discovered most of the easily found petroleum, it is becoming increasingly difficult and exceedingly costly to find new fields that will meet the rising demand; but, the security of our country demands that we take every step and means available to increase our oil reserves.

While it is not a substitute for crude oil, yet oil shale and coal offer the Nation a certain and reliable method to increase its liquid fuel supply. Oil shale is found in more than half, and coal in 31 States of the Union. The largest and richest oil shale deposit on this continent lies in the States of Wyoming, Utah, and Colorado. We have there, sufficient shale to fuel this Nation for well over 1,000 years. That is in effect, a free insurance policy that guarantees fuel for our Nation when the supply of crude oil is exhausted.

Development during the past few years of low-temperature carbonization to extract oil from coal has made that natural resource a valuable source of much-needed liquid fuel. The Nation's coal reserves are estimated at nearly 2 trillion tons. Wyoming alone has an estimated 121.5 billion tons of coal reserves, and we are looking forward to development of a synthetic fuel industry in our State.

The welfare of our country demands that we provide assurances of a continuing source of liquid fuels and adequate standby reserves to safeguard and secure our national security. "It would be folly for us to place dependence on oil produced beyond our continental límits.

In the years that lie ahead, the development of the tremendous oil shale and coal deposits in the Rocky Mountain region will be essential to provide the assured source of liquid fuels. We have spent millions in recent years on research at Rifle, Colo., and the Bureau of Mines Laboratory at Laramie, Wyo., to prove the commercial possibilities of oil shale. In addition, private industry has spent huge sums for the same purpose.

Establishment of an equitable depletion rate for oil shale and coal will enable free enterprise to develop an oil shale and coal synthetic fuel industry under similar conditions as was afforded to the oil and gas industry. If accorded this same treatment, the oil shale and coal industries can commence the recovery of oil from our shale and coal deposits. This, in turn, will lead to the development of new industries which will produce new revenues for the United States and for the individual States; and, in addition, will provide employment for many of our people. I hope the committee will take favorable action on this legislation.

STATEMENT OF SENATOR GORDON ALLOTT, OF COLORADO Mr. Allott. Mr. Chairman, we are beginning a session of Congress that history may record as one of the most significant in the long life of our Republic. What action is taken during the coming months will affect the future, not only of every American, but of millions of other people around the globe, and may even determine our survival as a nation and as a way of life.

There are a great many weighty, complicated matters of national defense to be considered and these will get our primary attention. In this regard, I want to discuss one area which has a direct bearing on our ability to remain strong, productive, and secure in a world of international tension—the development of our oil-shale reserves.

No one today would question the importance of oil in our world of modern technology and mechanization. It is true that we have opened up new possibilities of power in atomic and nuclear reactions, but the day is far beyond the horizon when these sources of power will take over the myriad daily duties now handled by oil. There is no sign for years to come that the steady increase in consumption of oil will level off, much less decline. Oil is expected to fill 70 percent of our future energy needs. The actual rate of acceleration of demand in the United States in the past has been 5.8 percent per year, compounded annually. Taking a conservative rate of future increase at 4.3 percent, our domestic consumption which was 8.8 million barrels per day in 1957 will rise to 10.3 million barrels per day day in 1960—just 2 years from now—and to 12.8 million barrels in 1965.

At present we are supplied by our own crude oil production and by imports. It is questionable whether we can continue to rely with any confidence on these two sources alone in the future. We have been fortunate in this country in having oil reserves that have been largely adequate to our needs. However, these reserves are being used up while demand increases. Oil exploration is becoming less rewarding and more expensive. In 1945 to find a million barrels of new reserves required the drilling of approximately 60 wildcat wells, 18 of which

were productive. In 1955 the number of wells needed to produce the same amount of oil was 41 successful wells. Roughly 80 percent of all wildcat wells drilled in the United States are dry holes. Out of about $5 billion spent each year on exploration, half goes into ventures that prove unsuccessful. The cost of discovering and producing a barrel of oil has risen steadily. It is now almost to the point where the net value of crude oil is less than the exploration expenditures; in fact, this is the situation in many areas.

On the basis of a conservative estimate of future needs, by 1965 there will be an oil shortage of 3.8 million barrels a day. If we should find ourselves in a period of emergency operations, the need would be substantially greater. There seems to me to be serious doubt that the deficit can be made up entirely by the importation of oil.

The major area of foreign supply, the Middle East, is an area of political instability, as we are all painfully aware. Recently we have witnessed a number of crises. The shutdown of the Suez Canal and the destruction of Syrian pipelines confronted the world with a petroleum shortage. Although fortunately the effect was only temporary, the issues that inflame the inhabitants of that part of the globe have not been settled and we do not now see how and when they will be settled. The Soviet Union during the past year took more than a casual part in fomenting fear and inciting these incidents and it would be foolhardy to assume that it has decided to withdrawn from these policies. We simply cannot count on Middle Eastern oil flowing without interruption to our pipelines.

The situation is scarcely more promising in other major areas of foreign supply: South America, while relatively more stable, has suffered periodic revolutions and other crises; any repetition of these could seriously affect export of oil. There also the Communists are seeking to spread their influence by subversion. In Alaska we have a great potential supply, but the potential is as yet undeveloped and the geographic location of this Territory raises serious questions about its accessibility in a time of emergency. Any sort of limited conflict anywhere in the world would have the effect of reducing our oil imports by endangering shipping and by necessitating use of transportation resources for military needs.

Another complication is that the United States will be competing on the world oil markets with many other nations. In every part of the world countries that have been backward by our standards are rapidly surging ahead in industrialization and technological development. Their needs for oil can be expected to expand astronomically. Considering such factors, Mr. Eugene Ayres, of the Gulf Research Co., has said, "It seems certain that the world's annual production of petroleum will have fallen far behind demand by 1965. In light of these circumstances it is not surprising that official policy has discouraged any reliance on foreign imports of oil.

Similarly, former Under Secretary of State, Herbert Hoover, Jr., pointing to the effects of the Middle East disputes, recently said:

Those events demonstrated, perhaps more vividly than ever before, that the security of our Nation in times of emergency-in fact the security of the entire free world-depends to very considerable extent upon our having adequate domestic supplies of petroleum.

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