claim for a part of this discovery depreciation, or, from the standpoint of equity, does it actually belong to the lessee, the real discoverer? Mr. GREENIDGE. Yes. My ideas on that, Doctor Adams, are very decided.

Doctor ADAMS. In other words, that the lessee is really entitled to it, and the lessor, being the passive agent, is not entitled to it; is that correct?

Mr. GREENIDGE. Yes; I fully agree with you. The lessee is entitled to practically all of it, in my opinion.

Doctor ADAMS. Will you call the attention of the committee to the very difficult problem that exists in the present statute? For instance, the statute now gives this discovery depletion only in case the taxpayer is the discoverer, has made the discovery, and yet, for reasons, the department divides the discovery depreciation between the lessor and lessee.

Senator COUZENS. The statute requires it.
Mr. GREENIDGE. Yes.

Doctor ADAMS. Well, the statute does both things. The statute says that discovery depletion shall be granted only in case the discovery has been made by the taxpayer. Apparently, therefore, the benefit of discovery depletion should go only to the discoverer, and yet there is another provision of the statute, as you say, which says that this allowance shall be equitably divided between the lessor and the lessee. My question is, is it possible to amend the statute in a way that would simplify that situation?

Mr. GREENIDGE. I am quite sure that that should be done, in my opinion. Let us take an instance like this: Oil is discovered, and the market price of it is $1. The lessee gets by with a depletion unit of 25 cents, and it is quite possible for the lessor to get by with a depletion unit of 75 cents. The lessor has not expended one penny in money or one hour in energy to discover it. Nevertheless, he is allowed it in a greater amount. Of course, he does not get as great an amount of income, but he takes no risk; that is, the lessor takes no risk.

Doctor ADAMS. Mr. Greenidge, with respect to that 30-day provision and with respect to the division between lessor and lessee, does the revenue bill as it passed the House make any change in the existing law?

Mr. GREENIDGE. I think not. From what I have seen of it, I should say no.

Doctor ADAMS. One further question. Is it not highly desirable, from a practical standpoint, to avoid valuation, if possible, or to the extent possible?

Mr. GREENIDGE. No; not to the extent possible, but to the extent practicable. "Possible" is a little too great a limit to introduce there.

Doctor ADAMS. Other things being equal, then, any depletion provision which satisfied the requirements of equity and sound policy and avoided valuation would be far superior to one that included the necessity for valuation, would it not?!

Mr. GREENIDGE. I should say so, sir. Wherever you can avoid taking another step in a procedure necessary for tax collection, I should say it would be a good thing.

Doctor ADAMS. From your investigations of the subject are you convinced that a depletion discovery based on gross income, thus avoiding the necessity for a valuation, could be devised which would do everything that the present statutory provisions do?

Mr. GREENIDGE. It has been along those lines that I have been thinking for a long time and have not had time to get enough figures together on that subject to answer it directly yes or no, but it is my opinion that that is a proper line to pursue.

Doctor ADAMS. The present statutory provision for discovery depletion permits a discovery to be made and the benefit of this discovery valuation to be taken by the man who drills a well, even 100 yards from another well, provided the field was not proven when he bought. does it not?

Mr. GREENIDGE. It does.

Doctor ADAMS. In short, offsetting wells are treated, in many instances as discovery wells, are they not?

Mr. GREENIDGE. They have to be under the statute.

Doctor ADAMS. Is that regarded by the experts on this subject as a fair and reasonable carrying out of the intent of the statute-and. by the way, let me say that, so far as I know, you are interpreting the statute correctly.

Mr. GREENIDGE. Yes.

Doctor ADAMS. But it is a question of whether the main purpose of the statute at that point is logically carried out.

Mr. GREENIDGE. That is the place where the discovery clause of the revenue act is abused; that is, in my opinion.

Senator COUZENS. Mr. Hartson, who is here, knows most about the Gulf Oil Corporation case?

Mr. HARTSON. Do you mean the auditors who have actually been working on the figures, or the history of the case?

Senator COUZENS. Yes; the auditor who has been over the figures. Mr. HARTSON. Mr. Mattson.

Senator COUZENS. If you are through with Mr. Greenidge, I would like to have Mr. Mattson called to the stand.

Mr. NASH. I would like to submit an exhibit here, before Mr. Greenidge leaves the stand, which shows the amount of tax paid by the Gulf Oil Corporation, with the depletion deduction, and computed without the depletion deduction. For 1916 it makes a difference in the tax of about $32,000, and for 1917 it makes a difference in the tax of $817,000, or a total of $849,000.

I want to ask Mr. Greenidge again if, in his opinion, had that amortization claim been pressed it would have resulted in a refund of more than $849,000?

Senator COUZENS. I do not think that matter is relevant. You are bringing in something entirely outside the question. The question is not what might have happened. The question is not what was waived to get under the gateway before Mr. Mellon came in, but what was allowed and what actually happened.

Senator ERNST. Senator Couzens, I would like to know, because a good deal has been said about the Gulf Oil Co. here, and I think it shows that the Gulf Oil Co. has acted in a rather fine way, rather than in a way which would make it open to any sort of attack. There was a claim they could have pressed, and I would like to know just the answer to this question.

Senator COUZENS. I want to say right here, Mr. Senator, that no one on this committee has made any charges against the Gulf Oil Corporation.

Senator ERNST. They were being made on the floor of the Senate to-day.

Senator COUZENS. That has nothing to do with the proceedings of this committee.

Senator ERNST. Yes; because every time the Gulf Oil Corporation has been mentioned you have asked questions about it.

Senator COUZENS. I want to say right here that I shall object to this, because it is not a part of the record.

Senator ERNST. You can object to it, but I have a right to have it in, and I am going to ask the question.

Senator COUZENS. You may have it in, but I am going to object to it, because it is not relevant to this case:

Senator ERNST. You are undoubtedly right in making your objection, but I want the question answered.

Senator COUZENS. But it can not be answered because they have not the figures, and I object to the answer, because he has not the figures.

Senator ERNST. Have you not the figures here?

Mr. GREENIDGE. Not exact figures to show what the offset would be, but if it does not equal that, it very nearly does.

Senator ERNST. Then, give it as nearly approximate as you can. Mr. GREENIDGE. That additional deduction would have thrown it in the 80 per cent bracket, which would be approximately $960,000. I am giving those figures in round numbers, Senator.

Senator COUZENS. Less tax, you mean?

Mr. GREENIDGE. Yes, sir.

Senator COUZENS. That would have been paid?

Mr. GREENIDGE. Yes; less tax, that would have been paid.

Mr. NASH. The point to bring out is that the amountr ecoverable, or that could have been recovered by pressing that amortization claim, would have been greater than the amount by which the tax was decreased for 1916 and 1917 as a result of the use as a deduction the depletion of leaseholds.

Mr. GREENIDGE. Yes; approximately.

Senator COUZENS. I want to point out, of course, that we have no evidence that the amortization claim was justified, and no report has been made that it would have been allowed had it been pushed. I want to say further that this information is not relevant to the question of depletion of oil wells. There is a great difference between the depletion of oil wells, and they are not comparable at all.

Senator ERNST. But still that shows the spirit of the Gulf Oil Co. to have everything cleaned up before Mr. Mellon came in. There has been so much talk about him, and I am very glad to have that in this record.

Senator COUZENS. The Gulf Oil Corporation is not under investigation. The Bureau of Internal Revenue is under investigation.

Senator ERNST. The Gulf Oil Corporation is not under investigation, but, at the same time, it is made to look as though the company were trying to get the best of the Government.

Senator COUZENS. This happened during the previous administration, and no charge has been made against the Gulf Oil Corpo

ration. The whole question is as to why the bureau might allow depletion credit in certain cases and not in other cases.

Senator ERNST. Yes; but every time Secretary Mellon's name is mentioned there is a very keen desire to find out all about it.

Senator COUZENS. I do not know whether you were here or not when Mr. Mellon volunterred this information. Nobody asked for it.

Senator ERNST. But when we can find out any fact which shows that the company in which he was interested has acted in any way in an effort to defraud the Government, I want that also shown. Senator COUZENS. You are assuming, then, that they attempted to defraud the Government?

Senator ERNST. No; I think I have heard enough said about that company to know that it has not many friends where it ought to have them.

Senator COUZENS. Well, I am glad to see that you are among friends of the interests.

Senator ERNST. I certainly am.

the

Mr. GREENIDGE. Before leaving the stand, if I may be permitted to state it, there were two other large allowances made for depletion on lessee value prior to the promulgation of Treasury Decision 3386. In one instance it was close to $2,000,000 to one concern.

The CHAIRMAN. Which concern is that?

Mr. GREENIDGE. I do not think, Senator, that I properly-
The CHAIRMAN. All right.

Senator COUZENS. I do not think that kind of evidence, Mr. Chairman, has anything to do with the case. We can not try this case on that kind of evidence, because we have no way to prove it. They are reading from the record figures that have nothing to do with the case at all. They are being put into the case, and we can not find anything about them, and they do not offer any testimony about them.

The CHAIRMAN. I think the mere statement that some other company was treated in the same way would not be applicable here. Senator ERNST. I do not think that that does the slightest bit of harm. Mr. Chairman.

The CHAIRMAN. We are talking about oil companies, and unless it was to make a comparison of this oil company with other oil companies, it would not be particularly advantageous, but if it be with regard to any oil company, I would have no objection to his making the statement.

Mr. GREENIDGE. And the other one thing that I think I should call to the attention of the committee before I am excused from the stand is the fact that during the past year the average production of all the oil wells in the United States was 5.7 barrels per well per day. Senator King asked a question that led up to that request.

Senator ERNST. I know some wells that have brought down that

average.

Doctor ADAMS. The witness has given the names of about twenty companies that have received this lessee depletion. He now says that he has the names of two other companies. Does the committee want the names of those two other companies? Mr. GREENIDGE. That was omitted.

The CHAIRMAN. Yes. What are they?

Mr. GREENIDGE. The other companies are the Southern Pacific Oil Co. of California

The CHAIRMAN. Is that an oil company?

Mr. GREENIDGE. Yes; and the Associated Oil Co. Neither of those cases was closed, although the allowance was made prior to the promulgation of the Treasury decision.

Senator COUZENS. What year did that accrue?

Mr. GREENIDGE. In 1916 or 1917. I have those figures, 19 per cent dry holes.

The CHAIRMAN. Of all of the wells drilled 19 per cent were dry holes?

Mr. GREENIDGE. Yes, sir.

The CHAIRMAN. Covering what period of time?

Mr. GREENIDGE. Ten years, I am told.

The CHAIRMAN. Do you know how many wells have been drilled in the United States in 10 years?

Mr. GREENIDGE. Yes.

The CHAIRMAN. How many?

Mr. GREENIDGE. I can not tell you offhand.

The CHAIRMAN. Have you a record of all of them?

Mr. GREENIDGE. Oh, yes-240,589.

Senator ERNST. For how long a period does that cover?

Mr. GREENIDGE. From 1910 to 1920.

The CHAIRMAN. Nineteen per cent dry?

Mr. GREENIDGE. Yes, sir.

The CHAIRMAN. And those wells are producing an average of 5.7 barrels a day?

Mr. GREENIDGE. An average of 5.7 barrels per day. That has been increased very materially through flush production of the California field and the Powell field of Texas. In the years prior thereto it probably ran down below 4 per cent. I know it ran below 4 per cent. I will submit these statements for the record at this point. (The statements referred to are as follows:) Estimated ultimate recovery, 500,000 barrels oil. Market price of oil at date of estimate.-Drilling, pumping, overhead, and all other cost.

Net value of oil....

$1.25

. 25

1. 00

Present worth computed at 5 per cent compound discount for deferred