Senator FULBRIGHT. Yes. Figured at $1, that is $7,000,000. Therefore, the reasonable loan value, assuming those figures to be correct, would be less than $7,000,000? Mr. HISE. NO; I wouldn't necessarily say that, if I was called upon to pass on it. I would say that is one of the factors that would enter into the consideration of the amount of the loan to be made; namely, the collateral and the volume of money that you got from those particular reserves. As has been pointed out here during the day by some of my associates, other factors in addition to the particular reserves would have to be considered; namely, the amount of additional oil that would come from the development of proven acreage. I am no geologist. I couldn't hazard a guess and would not attempt to. Senator FULBRIGHT. Well, Mr. Hise, your opinion is that the $15,000,000 loan to the Texmass Petroleum Co. is "of such sound value, or so secured as reasonably to assure retirement or repayment"? Mr. HISE. If I had to pass upon it I would take the position that it is. Senator FULBRIGHT. That it is? Mr. HISE. That would be my judgment. Senator FULBRIGHT. Does the RFC still propose to disburse this loan on or before April 27, 1950, if the borrower meets all the conditions which, in your opinion, as given on April 13, 1950, then remained to be met? Mr. HISE. I have heard no discussion to the contrary. You asked us to hold up the disbursement until you could have a hearing here and discuss the matter. We at that time, as I told you the other day over the telephone, had somebody telephone Mr. Glidden and I assumed that they are continuing to meet the conditions that we set forth, but I also assume that there has been no disbursement. When we get through here, unless we hear something more than we have heard so far, I think we would be compelled to tell Mr. Glidden to proceed to close the loan. We would be compelled to do that, if the applicant meets the conditions set forth. Senator FULBRIGHT. Mr. Hise, I don't recall that I asked you to hold up disbursement of this loan. I asked you if you were going to. Mr. HISE. Well, maybe I misunderstood you, but I was under the impression that I said it the other day here and you didn't object to it and I assumed that is what you wanted done. Senator FULBRIGHT. I think that might be a fair conclusion. However, I didn't directly ask you to hold it up. I think it might be fair to assume that I disapprove of the loan. That might be a fair conclusion. Mr. HISE. We try to cooperate. Senator FULBRIGHT. I just want the record to show that I don't believe I directly, at any time, requested you to hold up the disbursement, although I would not say you were unreasonable in assuming that you were not only to hold it up, but not make it at all. That would be a fair statement. Mr. HISE. Well, we try to cooperate with you. Senator FULBRIGHT. Then the answer to that last question, I assume from what you said, is "Yes"; that you do propose to disburse the loan? Mr. HISE. I think that would be a fair assumption. Senator FULBRIGHT. Gentlemen of the RFC, I appreciate your coming down here all day Saturday. I can assure you I didn't like it any more than you did. This meeting is concluded. (Whereupon at 5:50 p. m., the subcommittee recessed, subject to call.) STUDY OF RECONSTRUCTION FINANCE CORPORATION TEXMASS LOAN THURSDAY, APRIL 27, 1950 UNITED STATES SENATE, SUBCOMMITTEE ON R. F. C. MATTERS OF THE COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The subcommittee met, pursuant to notice, at 4:15 o'clock p. m. in room 109, Senate Office Building, Hon. Paul H. Douglas presiding. Present: Senators Douglas and Capehart. Also presert: Mr. Meader and Mr. Herz. Senator DOUGLAS. The subcommittee will come to order. I will now make a statement for the record. Mr. Murrell, the Subcommittee on RFC Matters of the Senate Banking and Currency Committee has held a number of public hearings recently in connection with its study of the proposed RFC loan to Texmass Petroleum Co. We thought it desirable that you appear before the subcommittee as an unbiased professional petroleum engineer and geologist. We hope that from your testimony the subcommittee will be able to obtain information about certain general practices in your field in the making of estimates of reserves of oil in the ground and in the making of estimates of their value to prospective buyers, sellers, borrowers, or lenders. Mr. Murrell, you appeared here under subpena. I would like to have you take the oath, if you would raise your right hand. Mr. MURRELL. Yes, sir. (Whereupon, Mr. Murrell was duly sworn by Senator Douglas.) TESTIMONY OF JOHN H. MURRELL, DeGOLYER & MacNAUGHTON, DALLAS, TEX. Senator DOUGLAS. Mr. Murrell, I wonder if you would identify yourself and state briefly the nature of your background, of your training and of your experience and other qualifications as a professional petroleum engineer and geologist. Mr. MURRELL. Yes, sir. My name is John H. Murrell, 1100 Continental Building, Dallas, Tex. I am a graduate of the United States Military Academy in 1930, receiving a bachelor of science degree in engineering. I was retired from the United States Army in 1934, because of an injury incurred in line of duty. I entered in the oil business upon leaving the Army, working in the field as a lease helper, an oil well drilling helper, and an oil well driller. In 1936 I returned to school to extend my education to include petroleum engineering and geology, in 1936. In 1937, after successfully passing all courses taken, I went to work for the Tidewater Association Oil Co., as a petroleum engineer, entering their employment February 24, 1937. That was in the east Texas field. From there I was transferred within 3 months to an account called the Tidewater Seaboard partnership and worked in the field, the oil field. From there I was transferred to an account called the Tidewater Seaboard Humble and worked in the general area of central Texas for that partnership. From there I was transferred down to southern Louisiana, and worked for the Tidewater-Gulf and Humble partnership. A few months later I was transferred to another partnership, Tidewater, Humble, Gulf, and Shell. Senator DOUGLAS. Off the record. (Discussion off the record.) Mr. MURRELL: During this period for which—and it was a period which extended into 1939, that I had been working for these various companies as an engineer, a petroleum engineer, I received a very thorough grounding in field practices and operations of fields, from a petroleum engineer's standpoint, doing a considerable amount of reserve appraisal work for my employers. Senator DOUGLAS. I would like to call special attention to this last statement of the witness-the words "reserve appraisal," because that is the issue we are asking him about today. Mr. MURRELL. I did reserve appraisal work for the companies for which I was employed. In 1939 I went to work for the Shell Oil Co. because of the increase in salary offered to me by them at that time, and continued working with Shell as a production engineer until September 1941. In my work with Shell as a production engineer my duties had to do wholly with reservoir engineering and geological studies and appraisal of Shell Oil Co. reserves predicated upon those reservoir engineering and geological studies. In 1941 in September I went to work for the United States Government in an Interior Department branch under Mr. E. DeGolyer, who was Director of Conservation for the Coordinator for War. Senator DOUGLAS. Was that Ralph Davis? Mr. MURRELL. It was for an office called the Office of Petroleum Coordination for War, the Deputy Administrator of which was Ralph K. Davis, and the Administrator of which was Mr. Ickes. I was classified as a professional engineer, No. 6, which is in the civil service rating called principal engineer. My work in this division had to do with the estimation of reserves of all the fields in the United States, singly and in toto, and it had to do with the produceability of oil from these fields in the maximum amounts, because of the imminence of war, of World War II. During the period with the Petroleum Administration for War, I was in charge under Mr. DeGolyer of the reserve estimates for every field in the United States and Mexico. He loaned me to a J. Terry Duce, who was in charge of the foreign department, in order that I could make studies on the petroleum reserves, the producibility of the petroleum reserves in .all the fields of Mexico, Venezuela, and Colombia. In addition, I advised with the foreign department, headed by Mr. Duce, on the producibility of reserves of other fields, throughout the world. In 1943, on September 13, I resigned from the Petroleum Administration for War, to join the firm of DeGolyer & MacNaughton, and simultaneously was apppointed by Mr. Ickes as a petroleum consultant for a Government corporation known as the Petroleum Reserve Corporation, the directors of which were the Secretaries of War, Navy, Interior, and the State Department, and of which corporation Mr. Ickes was the president. As the petroleum consultant for this firm, I was one of a mission of three sent to study the reserves and produceability of petroleum in the fields of the Middle East, which included the fields in Egypt, Saudi Arabia, Sheikhdom Baharien, Sheikhdom Kuwait, Iran, and Iraq. This assignment was completed in April 1944, when I returned to Dallas as a member of the firm of DeGolyer & MacNaughton, a partnership. In a short time after joining the partnership of DeGolyer and MacNaughton, I became a full partner, the other two partners being Mr. E. DeGolyer and Mr. Louis W. MacNaughton. This firm became a corporation on November 1, 1949, and I was elected executive vice president in charge of all operations. The business of our partnership, DeGolyer and MacNaughton, and its sequel, the corporation DeGolyer and MacNaughton, is the appraisal of oil and gas reserves-no-is consulting geological and engineering work. A major portion of our business concerns the appraisal of oil and gas reserves for our clients, which include, or which have included, 14 of the largest integrated oil companies in the United States, many smaller integrated companies, many smaller oil and gas producing companies, and many individuals which engaged in the oil and gas and kindred enterprises. Senator CAPEHART. Off the record. (Discussion off the record.) Mr. MURRELL. In addition to working for companies, we worked the oil and gas reserves each year of all of the fields in the United States of any material size, and we worked these fields on an individual basis, in order that we will be in a position to more fully serve our clients when they requested us to do appraisal work on their properties more efficiently and expeditiously to serve our clients. (Discussion off the record.) Mr. MURRELL. I am directly in charge of all appraisal work for our firm and all discussions in regard to our appraisals, and in addition to appraisal work and the estimation of oil and gas reserves, we are required from time to time for various reasons to estimate market value, the fair market value, of petroleum properties-both for our clients and for banks, insurance companies, and any other groups who may have need for such type information, for use at the Federal income tax agencies, Federal Power Commission hearings, and Security and Exchange Commission hearings. In the past 10 years our firm has completed over 1,000 separate assignments, many of which included only the estimation of oil and gas reserves, and many of whlch included the setting of a market value on those reserves unrecovered but recoverable and still in the ground. |