Oil: Any of a large class of unctious combustible substances, which are liquid, or at least easily liquefiable on warming, and soluble in ether, but not in water. They leave a greasy stain on paper, cloth, etc. Specifically petroleum. Any substance of an oily consistency. Furnace: An enclosed place in which heat is produced, as for reducing ores, melting metals, warming a house, etc. Gangue: The worthless rock or vein matter in which valuable metals or minerals occur; veinstone, matrix. Mercury: A heavy silver-white metlalic element, the only metal that is liquid at ordinary temperatures; called, also, popularly, quicksilver. Ore: Any material containing valuable metallic constituents for the sake of which it is mined and worked; often loosely applied to nonmetalliferous material, as sulfur. Quicksilver: The metal mercury. Retort: So named from its bent shape. A vessel in which substances are distilled or decomposed by heat. Roasting Metal. To heat with access of air, but without fusing, as to expel volatile matter or effect oxidation, and especially to remove sulfur from sulfide ores. Shale: A fissile rock formed by the consolidation of clay, mud, or silt, having a finely stratified or laminated structure and composed of minerals essentially unaltered since deposited. Bituminous shale upon distillation yields shale oil. Smelt, smelting: To melt or fuse, as ore, usually to separate the metal; hence, to reduce; to refine, to flux or scorify; as to smelt tin. APPENDIX B (C) In the case of iron ore, bauxite, ball and sagger clay, rock asphalt, and minerals which are customarily sold in the form of a crude mineral productsorting, concentrating, and sintering to bring to shipping grade and form, and loading for shipment; (D) In the case of lead, zinc, copper, gold, silver, or fluorspar ores, potash, and ores which are not customarily sold in the form of the crude mineral product-crushing, grinding, and beneficiation by concentration (gravity, flotation, amalgamation, electrostatic, or magnetic), cyanidation, leaching, crystallization, precipitation (but not including as an ordinary treatment process electrolytic deposition, roasting, thermal or electric smelting, or refining), or by substantially equivalent processes or combination of processes used in the separation or extraction of the product or products from the ore, including the furnacing of quicksilver ores; and (E) The pulverization of talc, the burning of magnesite, and the sintering and nodulizing of phosphate rock. APPENDIX C Production of Hg. :W. H. Dennis. Mining and Quarry Eng. 8, 277–80 (1943). Recovery of Metals: Vernon F. Parry, U. S. 2,497,096, February 14, 1950. Vertical Furnace for Roasting Cinnabar, Zinc Ore, etc.: J. Norrish, U. S. 1,551,424, August 25. Cinnabar Mining in the Terlingua District: Allen Richards, Mining J. (Pohenix, Ariz.), 20, No. 12 3-4, 34–5 (1936). Recent Design of Quicksilver Plants: C. N. Schuette. Eng. Mining J. 131, 316-8 (1931). Treatment of Mercury Ore: H. D. McCaskey. United States Department of Mines. J. Soc. Chem. Ind., 31, 728. The Metallurgy of Quicksilver: Bulletin 222, Department of the Interior, Bureau of Mines. U. S. Patent No. 1,541,404. U S. Patent No. 1,541,405. Mr. HARTLEY. Our department of the company has had the job of working on synthetic oil from shale and in the last 3 years tremendous progress has been made. In order to better acquaint the committee with the subject matter, I have brought along a piece of the shale rock to show to you. As you can see it looks like it would take a miracle to get oil out of material like this. This bottle contains oil which was extracted from that rock by a retort process which our company has developed and which we now have in operation at Grand Valley, Colo. There is no smell from the rock. The oil is very tightly held. As a matter of fact, that piece of rock you have there is about four times as strong as concrete. However, we have been able to work out, thanks to the leadership of the United States Bureau of Mines, the mining of the material and at the present time we are going underground with a pilot mine. The retort has been modified once again and its current rate of capacity is 1,000 tons of rock per day which will produce approximately 500 barrels of oil per day. I would like to take a second to indicate to you my feeling of the sense of urgency on this type of legislation. For 3 years now many devoted technical people in our company have given over and above the call of an 8-hour day to push this project forward. It has been a great technical achievement and I would like to point out that it is an achievement which was developed exclusively in the United States. Our retort is many, many times larger than any other retort in the world and it is one in which we citizens of this country should take some pride. For America to remain strong and not become exclusively dependent upon sources of oil beyond our boundary, it is extremely important that we develop an alternate source of liquid fuel supply. There should be no complacency or delay in meeting this situation. I therefore strongly recommend that immediate action be taken to provide equitable tax treatment in order that the citizen of this country may be given help in launching this great new industry. Thank you. Mr. KITCHEN. Mr. Lentz. STATEMENT OF HOVER T. LENTZ, ATTORNEY, DENVER, COLO. Mr. LENTZ. Mr. Chairman, my name is Hover T. Lentz, attorney, from Denver, Colo. I have a written statement I would like to include in the record. STATEMENT OF HOVER T. LENTZ, Esq., PARTNER OF DAWSON, NAGEL, SHERMAN & As you know, the issue of the extension of equal depletion treatment to synthetic fuels is before you by way of identical House joint resolutions. Such a resolution may, of course, be passed, and when signed by the President would become law in the same manner as a bill. However, it is our present feeling that the committee, if it takes action on this matter, would prefer to amend the 1954 code by means of a technical amendment. Accordingly, we have taken the liberty of drafting such a technical bill and submit a copy thereof herewith. The bill would extend the 27% percent depletion allowance to all natural deposits when used as a source of synthetic oil or gas and is designed to establish the cutoff point for ordinary treatment processes at a point including retorting of oil shale and hydrogenation of coal, to mention only two well-known processes. Because of limitations of time I will not here attempt to outline any further technical matters pertaining to this legislation. I am sure that such matters would be referred to the most competent staff of this committee. We shall, of course, hold ourselves available to answer any questions which you may have here and to work with any members of your staff. A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1954 TO ESTABLISH A 271⁄2 PERCENTAGE DEPLETION ALLOWANCE FOR MINERALS MINED AS A SOURCE OF SYNTHETIC OIL OR GAS Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. Section 613 (b) of the Internal Revenue Code of 1954 is amended (a) by striking out paragraph (1) and inserting in lieu thereof the following: "(1) 272 percent-oil and gas wells; and coal, oil shale, bituminous sand, gilsonite and other natural deposits, when mined as a source of synthetic oil or gas"; (b) by inserting after "lignite" in paragraph (4) the following: "(other than coal or lignite to which paragraph (1) applies),"; (c) by inserting after "shale" in subparagraph (A) of paragraph (5) the following: "(other than shale to which paragraph (1) applies),"; (d) by inserting after "gilsonite" in paragraph (6) the following: "(other than gilsonite to which paragraph (1) applies),”. SEC. 2. Section 613 (c) (4) of the Internal Revenue Code of 1954 (relating to the definition of ordinary treatment processes), is amended (a) by striking out "and" at the end of subparagraph (D); (b) by striking out "rock." at the end of subparagraph (E) and inserting in lieu thereof the following: "rock; and"; (c) by adding at the end thereof a new subparagraph as follows: "(F) In the case of coal, oil shale, bituminous sand, gilsonite, and other natural deposits, when mined as a source of synthetic oil or gas-crushing, retorting, and other extraction processes necessary to derive oil or gas from the crude mineral product." SEC. 3. The amendments made by this act shall apply only with respect to taxable years beginning after December 31, 1957. Mr. LENTZ. As you know, this matter is before your committee on several House joint resolutions. We have taken the liberty, however, to prepare a draft of the technical bill which if adopted by the committee and the Congress, would accomplish our objectives. Mr. FORAND. The draft of your bill is part of your statement, and will be in the record? Mr. LENTZ. Yes, sir. That bill would do two things: Number one, it would extend 271⁄2 percent depletion to all natural deposits which are used as a source of synthetic oil and gas. Second, it would define the ordinary treatment processes which would be included in computing the percentage depletion allowance. I won't trouble you further with these technical matters. We will be glad to assist your able staff in any way with respect to your technical drafting matters. Mr. FORAND. Thank you. Mr. KITCHEN. The honorable United States Senator from Colorado, Senator John Carroll, has asked to conclude our presentation. Mr. FORAND. We all know Senator Carroll very well. We were happy to see him go to the Senate, although we were very sorry to lose him in the House. STATEMENT OF HON. JOHN A. CARROLL, A UNITED STATES SENATOR FROM THE STATE OF COLORADO Senator CARROLL. Thank you very much, Mr. Chairman. Perhaps if I had been wiser I would have remained on the Ways and Means Committee. At least it has taken me a long time to get back to Congress. I want to fully endorse the statement of former Senator Edwin C. Johnson and our recent Governor of Colorado. About 30 years ago, Congress passed the depletion allowance. Many of you gentlement who remember my former service on this important committee know that I have not been in favor of 271⁄2 percent depletion allowance. I look upon it as one of the loopholes in our taxing system. President Roosevelt sent a message to the Congress and to this committee many years ago and while I was a member of this committee, President Harry Truman sent a similar message. They felt that the percentage allowance given was too large. I am very frank to say to you that as a member of this committee I concurred in those opinions. We are no longer confronted, however, with a theory, but with a condition. I was a member of this committee when this matter was under executive session consideration. I recommended the so-called doctrine of equation. If you would not come down the hill, I argued, you ought to go up the hill by granting equal tax treatment. Today I am impressed by former Governor Johnson's statement in this regard. As a matter of equity I think this is what we are asking for: for the great areas of Colorado and Wyoming and Utah, a matter of equity which will bring new revenue to this country. It seems to me that in view of the tax consideration given to oil and gas in place, how can it be denied to oil shale especially when we will employ in these areas thousands of people in the future and there is no doubt in my mind that millions of dollars of new revenue will come to this country, and to our Treasury. Not long ago we held hearings in the antimonopoly committee of the Senate Judiciary Committee. In this investigation of the oil industry, we found, concerning tax depletion allowance, that under the law passed in 1926, this Government, the United States, was losing hundreds of millions of dollars in revenue because of oil depletion. tax allowance given to those who operate the oil fields of Saudi Arabia. Now, it would seem to me that if we can give that consideration never initially contemplated by this tax-allowance law passed in 1926— if we can give that consideration to the American oil producing corporations of Saudi Arabia-why can we not do something for our own domestic oil shale economy. May I say to you that I am speaking now from memory, but if my memory serves me correctly, Aramco, which is owned by Standard of New Jersey, Texaco, Socony Vacuum, and I think the Standard of California, in one recent fiscal year received $120 million of tax depletion allowance. I think the record will show that in 1949 or 1950 Aramco was paying about $50 million in revenue to this country. Through some sort of arrangement, some sort of tax offset contrivance, I thing participated in by our State Department and by our Treasury Department, since 1950 not one dollar of revenue has been coming to the United States Treasury from the Aramco operation. This is what was uncovered in our investigation last year. May I add, originally a House committee also made the same discovery. I am not in here now today to talk about perhaps how the tax loopholes can be closed, although there are some very illuminating articles on this subject written by Jack Steele of Scripps-Howard in the past few days. All I say is that there is need for tax equity in our own domestic oil shale deposits where we have hundreds of millions of barrels of oil that are needed for future use. We can stimulate production; we can stimulate employment; we can stimulated our economy, which is needed in this declining period, if we now give the same tax privilege to oil shale investors and producers as is granted to the oil and gas industry. It will be good for the West and good for the Nation and good for the Treasury of the United States. Therefore, I think as a matter of equity and logic, this new oil shale industry ought to receive the same tax privilege given to the giant oil corporations of this Nation. Thank you very much. The CHAIRMAN. Thank you, Senator. Mr. KITCHEN. Mr. Chairman, in conclusion our committee thanks you very much for this opportunity, and we will be glad to answer any questions you may have. I would like to say our committee does not take any position on oil and gas depletion, nor what it should be. We merely say our costs are roughly the same. We feel that in order to attract the enormous capital necessary we need the same tax consideration. The CHAIRMAN. Thank you, gentlemen, for the information given the committee. Are there any questions? Mr. Mason will inquire, Mr. Kitchen. Mr. MASON. Do you know that yesterday we had before this committee a witness by the name of Ruttenberg who presented this entire depletion problem as one that robs the poor and gives to the rich and should be done away with? That is the opposite picture of what we have painted today. I do not mind saying that so far as I am concerned, I believe in and think the picture today is a sound one and the picture that we had yesterday is a very unsound one. But I did want you people to know that we get both sides of the question. Mr. KITCHEN. We subscribe to your point of view. Mr. REED. I appreciate the very illuminating statement made by Senator Johnson. I have one county in my district where, if we did not have the 272 percent depletion, the well would be closed. It is a secondary operation now, very rich oil and all that, but without that depletion it would close up and the financial backbone of that county would be gone. I am glad to hear your presentation today. Thank you, sir. |