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PRIKT United States. Since that time Kansas has established a cooperative T. OL royalty pool and a number of other cooperative royalty pools have
been established. There are now five going concerns.
We feel that there is a value to that crop underground; that it is of greater value to have it pooled. We found out, in our experience, as I told you, before we had a cooperative royalty pool, that just the local one was of advantage to us. Since we have established our farmers' union cooperative royalty pool we have found that we could lease lands that individual farmers could not lease, and, therefore, commence getting rentals from that underground crop; that we can get larger bonuses when we do lease than the individual can get, and that we can get development where individuals could not get development. In other words, we get those who do lease to come and drill. In spite of these awful times we have been going through for the last three years, in the three years' history of our farmers' union cooperative royalty pool in Oklahoma, we have today producing wells in spite of the fact that it is almost impossible to get development on account of the price of oil being so low that it does not encourage those who have money to go out and spend it in searching for oil.
Wc, in the beginning, could finance the expenses of building these pools, but financing is clearly out of the question now. Good land anywhere-it does not make any difference where it is-Illinois, Iowa, or wherever it is, has no loan value and no basis for a farmer having credit at a bank. You might own a thousand acres of land in Illinois clear of incumbrance, and you could not go to a bank and borrow a dime; and so our underground property has ceased to be a basis upon which we can secure any financing, and we have had this bill introduced. Congressman Jones introduced it in the House, feeling it is no more than right that we be allowed to participate in the Government's financing of worthy projects for farmers. That is about our proposition.
Mr. STEVENSON. You speak of pooling your interests. What is your process of getting the landowners together? On what basis?
Mr. Simpson. Yes, sir. In the various pools we have had a little differentiation in acreage. In Oklahoma, in our farmer's union cooperative royalty pool, a farmer can secure an equal share with everybody else in our cooperative royalty pool by deeding to the cooperative pool one-half interest in the royalty of an 80-acre farm. That is the deed.
A lot of you people have never had experience because you are not in States that have developed mineral rights. Your mineral rights pass just as your surface rights do. They can pass for a period of time through lease-lease them just like you would lease the top of the ground for raising corn. They can pass by deed.
Mr. STEVENSON. I think you will find that it has become the practice of land banks, in dealing with lands upon which they have mortgages and which they foreclose, that they reserve the right to repurchase the mineral rights.
Mr. STRONG. Not only that, but they have reserved the mineral right where the land has been sold.
Mr. DISNEY. And not only that but the House has passed a bill introduced in the Senate to try to cure that.
Mr. SIMPSON. We have all our arrangements with mortgage companies. Let me go a little farther with
oil we get an income from the royalty and an income from lea-ingati
Mr. STEVENSON. Just a second. Take John Smith: He has
1 500-acre tract of land. He comes to your farmer's union and be wants to get into the pool. Tell me what he does and how he does i
Mr. SIMPSON. He says, “I would like to have a share info farmer's union cooperative royalty pool”, and we give him a slim in return for him giving us a deed to one-half interest in the royalt; lying under an 80-acre tract. That is one half of an 80 acres i royalty. That is deeded to us.
Mr. DISNEY. A royalty is considered a one eighth of the oil When you speak of royalty you mean one eighth of the oil and produced without expense to the landowner. What they do is to take one sixteenth of the oil and gas produced.
Mr. STRONG. Then they give back à contract to him showing tar he has an interest in all of the receipts of the pool. I belong to the Kansas pool.
Mr. STEVENSON. He will give you one half the royalty on 13 80-acre tract.
Mr. SIMPSON. That gets him one share. If he wants to ore another half under another 80, we will give him another share and the limit under our cooperative law is 10 shares.
Mr. STEVENSON. You will not let him have more than 10 shares!
Mr. SIMPSON. That would be half of the royalty on 800 cm which would be one half of all the oil. I mean one sixteenth of the oil.
Mr. STEVENSON. His interest is acquired by units of 80 acres!
Mr. STEVENSON. And he just deeds away one half the royalty which would be one sixteenth of the oil?
Mr. SIMPSON. Yes, sir.
say he gets in there as the owner of one tract of 80 acres Mr. SIMPSON. Yes, sir.
Mr. STEVENSON. Do they come in there to develop it or do you take hold of it and lease it to some producer?
Mr. SIMPSON. We do no developing of lands. We do no speciala ing. We cannot buy and sell. We can only lease, and if the tri dollar an acre and we also get the bonus there are three was in getting an income to the farmer. Those all go into one pala? the money is paid out in dividends of equal shares to the share holders. It is like this: Here is an oil well that comes in wich would have made one farmer worth $10,000,000. Instead of 11.things one farmer worth $10,000,000, 2,000 participate in that $10,0 W and get whatever it is $5,000 apiece.
Mr. DISNEY. For instance, one lease in the Osage Nation--just the raw lease without a bit of development--sold for $1,000,000
Mr. SIMPSON. Yes, sir.
Mr. STEVENSON. That 80 acres may or may not be immediately leased, but if you lease it that money that you get goes into the pool.
Mr. SIMPSON. Yes, sir.
Mr. STEVENSON. And then if you go ahead and if there is production found on it, that goes into the pool ? Mr. SIMPSON. Yes, sir; that half of it. Mr. STEVENSON. What becomes of the other half? Mr. SIMPSON. That is his. He can do what he pleases with that. He is just pooling a part of it. The Osage Indians pooled the whole business, but we are just pooling a part interest.
Mr. STEVENSON. When a concern goes to borrow money it is only pledging its resources which consist of that half of it which goes into the pool ?
Mr. SIMPSON. Yes. Let me give you another picture
Mr. STEVENSON. Before you go into that, let me ask you this: You said something about a bonus. I can see where he gets all royalty money from the lease that goes into the pool and the money from production going into the pool. Now, you said something about à bonus?
Mr. SIMPSON. A bonus is what a person who desires to lease is willing to pay for a lease. In an untried territory it very seldom
Mr. ĐISNEY. A bonus is what you pay for a lease when you first take it. Rental is what you pay per year, such as a dollar an acre.
Mr. SIMPSON. Yes, sir. But an untried territory very seldom pays a bonus. If you get a lease at a dollar an acre, that is fine. But if there is a little excitement and they have been drilling over here, or they discover oil some distance away but close enough that the geology is or looks the same down at this place as at the other, they will
pay some bonus down there for a lease. Mr. STEVENSON. In other words, they will take a lease and undertake to develop it?
Mr. SIMPSON. Yes, sir. Of course, if they hit a well in a territory, then bonuses are big, just as Congressman Disney says. One bonus in an Osage field brought a million dollars.
Before I forget it, let me say that we have a management company that goes out and attends to all the expenses of getting up these pools. They get an undivided one-fourth interest in the pool for doing that. They pay the men who organize. They pay for the abstracts and deeds. You have to record those deeds when you get them and pay all the expenses. They maintain an office with expert geologists, and so forth. When a deed comes in, before we issue a share, that geologist says whether or not there is potential oil on it. Of course we would not give a share for 80 acres in solid granite, because there is no potential oil in it. You cannot drill through it. So we have to have experts to know what is acceptable and what is not acceptable, to show what gets bigger and better. There is where we are ahead of the individual farmer, because we have our experts. The three-fourths interest that the farmers have a share in cannot be alienated in any way. We have a bank that is trustee of the funds and under our contract that is all they can do with that fund, pay dividends. They cannot pay any expenses or incur any obligations and the president and secretary of the company, like a farmer's cooperative royalty pool in Oklahoma, authorizes the bank, when it is time to pay dividends, to do so and they make the checks.
This organization company (if this bill should pass) would allir them to go out and build other organizations. It puts men to workorganizers, and so forth. It is that feature of it that the Recora struction Finance Corporation likes to have, and it helps the farmers and people, and puts them in a position where they would get a better return from their crops underground than they do otherwise.
Mr. REILLY. Do you want the Reconstruction Finance Corporatica to lend money to your cooperative organization to develop oil!
Mr. SIMPSON. We want it to lend us just like it does to others
Mr. REILLY. Do you think, in view of the fact that there is too much oil in the country now, that the Government should lend mones to develop other oil fields ?
Mr. SIMPson. We think it is to protect the farmer in what he has got-not so much to furnish him money to develop other field but to prevent people from putting it up and taking it away fro him so that he vill have no interest in it in the future. He is an hard up that he, the farmer, is tempted to sell his royalty for what he can get and this will protect him.
Mr. REILLY. You can protect him under your cooperative organization. You can organize and use your bonus. You have done that You have tried to get the farmers together.
Mr. SIMPSON. Oh. yes. We have tried.
Mr. SIMPSON. You know that every member of the compans association costs $10.
Mr. REILLY. It should not cost that.
Mr. REILLY. You have a pool out there and you want the Gover ment to furnish money to develop that pool. Suppose you do pet develop oil on it, where is the Government going to get its moet back?
Mr. Simpson. These all have a value. You can sell them at times for 20 times as much as we would want to borrow.
Mr. REILLY. Suppose tinies continue like they are now!
Mr. Simpson. Well, of course, times are not what they used to be but times will be better.
Mr. REILLY. Do you not think that if there is any line of is in try that ought to be held down in production that it is the w industry! You people are coming in and want the Reconstru-tas Finance Corporation to lend you money to produce what is going produced to the extent of a useless surplus.
Mr. Simpson. That is not exactly the situation.
Mr. DISNEY. This amounts more to conservation than extrari nary development.
Mr. Simpson. We have too much wheat and have too much cutte and yet you are going to lend millions this very year to farmers te seed to raise more.
Mr. REILLY. The farmer is a going institution. You are not going institution. We are doing that to keep the farmer going a. keep him on his place. He has to raise something to live on.
Mr. Simpson. You have to give oil fields an opportunity to deve; or they will not live. Oil fields do not live always
. That is wha! makes these men, while they are not developing these fields, go ot and get new fields which may not be developed for 10 years free now. They know you will need oil and gas 10 years from now !
they are not taking chances on these wells going dry on them. We liave to keep developing. Mr. Blake is the main witness. I am just an old farmer out in Oklahoma.
STATEMENT OF ALDRICH BLAKE, OKLAHOMA CITY, OKLA. Mr. BLAKE. I am developing cooperative royalty pools. I want, first of all, to make this further answer to a member of the committee. These pools do not develop oil properties. That is all done by the operating companies. If the operating companies desire to develop a property, it would be developed, whether the mineral acreage was pooled or not, so that it does not matter at all so far as the production of oil is concerned. They would develop it if it belonged to an individual just the same as they would develop it if it belonged to a pool, if they wanted to develop it.
Mr. Reilly. Why do you want money from the Reconstruction Finance Corporation?
Mr. BLAKE. I will give you that in just a moment. I want to give you a little more of the background and importance of this project. In the five Southwestern States, consisting of Colorado, Oklahoma, Texas, Kansas, and New Mexico, according to the statistical abstract of the United States, the average value of all the farm crops in those States in 1929–30 amounted to $761,750,000, as against a total average value of minerals of $1,124,000,000. In other words, the farmer's crop beneath the point of the plow was 50 percent more valuable than all of the surface crops combined.
Our pooling program calls for the pooling of about 10,000,000 acres. We already have 1,100,000 acres pooled, so this is not a new enterprise. This group of cooperatives has the largest royalty spread of any concern in the world. The Government by act of Congress, as Mr. Simpson said, already has established the pooling principle. As a result of an act of Congress each of the 2.229 Osages up to date has received more than $110,000 in cash from the sale of leases and oil royalties. If our pools (and we have five of them at the present time) earn, acre for acre, for the farmer from the royalty mineral rights what the Osages lave earned, each of our Oklahoma pools would earn $5,500 per share: the Kansas pool would earn $11,000 per share and the Texas and New Mexico pools would earn $14,000 a share and still be earning. In fact, the shares in these pools are very apt to be over a period of time of greater value than the farms and all the improvements on them. It certainly will be true if we earn acre for acre what the Osages have earned by act of Congress, which is probably one of the best pieces of legislation ever enacted. There are other factors in this situation to be considered. The farmer who pools his mineral rights converts a frozen asset into a liquid one. A farmer could not go into a bank and borrow money on a mineral deed, but the moment he puts his mineral rights into a pool and receives a certificate, that represents an interest, not in a particular tract but in a large spread of acres, and it instantly has a definite loan value, because while the individual tract is a pure speculation a large number of tracts or spread removes the speculative
In fact, at our Senate hearing (and I would like to have Dr. William A. Hartman's testimony there made a part of this record) the matter was gone into more fully. Dr. Hartman was called back