Do you make any distinction in your mind between that kind of pipe line, a so-called gathering line, and the so-called trunk pipe lines, which transport crude oil from a central point or gasoline from a refinery to a point of consumption?

Mr. HOLLOWAY. Senator, I am merely a layman on all of this subject.

Senator REED. So am I, although I have had a little experience with it.

Mr. HOLLOWAY. I am not prepared to answer that question, because I am appearing only to present this telegram, and I am not informed on the subject.

Senator REED. Well, in my mind, I have read Senator Johnson's bill, which is under consideration, as preventing the extension of gathering lines to new wells, because I make a distinction between that kind of line and the so-called major pipe lines or pipe lines that carry crude oil from the point where the gathering lines may be considered as terminating or transporting gasoline from a refinery to a point of consumption or a point of distribution for consumption.

If Senator Johnson's bill, which I favor, does not make that distinction clearly, I shall be very happy to talk with Senator Johnson about it to see whether or not we can frame that bill to make that distinction. Frankly, I want that distinction made. I happen to come from that part of the country where the first Mid-Continent oil discoveries were made, and we have some 15,000 stripper wells in Kansas, and some of them produce as low as a half barrel a day.

I do not know just where you draw the line between a stripper well and another well, but I suppose if you had a well that would produce 10 or 15 barrels a day you would not call it a stripper well.

Mr. HOLLOWAY. I do not believe I know where the line is drawn. Where a small production has to be pumped it is known as a stripper well.

Senator REED. I agree with you entirely, but I have no desire to interfere with the development of the oil industry, and in the development of the oil industry the so-called gathering lines are in most instances quite essential. There are places where they will pipe crude oil from a newly drilled well or a newly developed well over to the railroad for transportation, but that is usually temporary. If the well or the field is large enough, sooner or later it is connected up with one of the crude oil pipe lines. That is correct, is it not?

Mr. HOLLOWAY. Governor Phillips, I know, has in mind immediately the situation in our State. We are undertaking now to bring in the several fields in Oklahoma. We have brought in one field in southern Oklahoma, near Durant, and if you have got to go through the red tape of securing the permits with all the possible opposition that can develop, certainly the wildcatter is going to think seriously about spending his money and taking the chance unless he knows he can immediately have an outlet for his oil well, and that is basically what is in Governor Phillips' mind.

Senator REED. For some 4 years I was chairman of the Kansas Public Utilities Commission, so-called at that time.

Mr. HOLLOWAY. Yes, sir.

Senator REED. That has been a good many years ago; but as I recall the law, we had jurisdiction over all pipe lines in Kansas of 15 miles in length. Below 15 miles in length we had no jurisdiction.

Mr. HOLLOWAY. Yes, sir.

Senator REED. Most of these so-called stripper wells, as I recall, were within 15 miles of what may be called a main pipe line. I would not say all of them are.

Mr. HOLLOWAY. But you are bringing in a lot of oil all around your State, and there will be more yet. This proposed legislation will be a great handicap; and there is no necessity, as Governor Phillips sees it. Senator REED. Also we have a surplus of transportation in the country. When I speak of transportation and the relation of it to oil, I am speaking of transportation of gasoline from some refinery to which the oil has been piped, and then it is refined, or I am referring to transportation of crude oil in long pipe lines such as the Standard first built, from some point in Kansas to Whiting, Ind. First they sent it up to Sugar Creek, Mo., and then they extended it over from Sugar Creek, Mo. to Whiting, Ind.

As I understand you, you are not referring to that kind of pipe line but you are referring to the gathering lines which make it possible for a man who has a single well or a group of wells or a new field to make a connection?

Mr. HOLLOWAY. Well, it is a single operation, after all, Senator, from the well to the refinery, wherever it goes.

Senator JOHNSON of Colorado. Not only to the refinery but, after it gets to the refinery, to the point of distribution.

Mr. HOLLOWAY. Well, that is true, Senator.

Senator JOHNSON of Colorado. That is where they come in competition with the railroads.

Senator REED. Mr. Chairman, if I might suggest, there is a little distinction there. When I was on the Kansas Commission, I happened to hear cases of this kind: Formerly the practice was to transport only crude oil in pipe lines; because it was thought that for some chemical reason they could not transport gasoline by pipe line.

Senator JOHNSON of Colorado. But that has all been changed. Senator REED. Yes; that has all been changed. There has been a gasoline pipe line, I think, from the Pennsylvania area down to the Atlantic coast; I am not entirely sure of that.

But I remember when the Transportation Act of 1920 was passed and the rate from Kansas to East St. Louis, in the Central States Association territory, was 2 or 3 cents a hundred pounds less than from Oklahoma.

Who is the Governor who opened that refinery at Kansas City? Mr. HOLLOWAY. Governor Marlin.

Senator REED. Yes. Judge Fletcher was not the general counsel then of the Association of American Railroads; and it took them quite a while to catch up with me. Finally they did; and Marlin said if that difference in rate continued-which, I think, was 2 cents a hundred pounds he was going to build a short pipe line from his refinery at Ponca City over the line, so that he would get the benefit of the rate. At that time it was a little uncertain whether you could push gasoline through a pipe line; but he said at least he was going to try it. That is my recollection of the circumstances that occurred a long time ago. One does not want to be always too sure of his recollection, when so many years have elapsed.

Senator SCHWARTZ. Mr. Chairman, we have a number of witnesses; and I assume that the real scope of this bill probably will be examined

to some extent by representatives of the Interstate Commerce Commission, before we get through, and probably they will answer a number of the questions which you and I have in imnd.

Senator JOHNSON of Colorado. Thank you, Governor Holloway. Mr. HOLLOWAY. Thank you for your courtesy, Senator, very much. Senator JOHNSON of Colorado. The next witness is Judge Seth, of Santa Fe.

STATEMENT OF J. O. SETH, OF SANTA FE, N. MEX., APPEARING AT THE DIRECTION OF HON. JOHN E. MILES, GOVERNOR OF NEW MEXICO

Mr. SETH. Mr. Chairman, my name is J. O. Seth. I am a lawyer in general practice, and reside at Santa Fe, N. Mex. I appear here on behalf of the State of New Mexico by direction of the Honorable John E. Miles, Governor of the State, to oppose the enactment into law of Senate bill 3753. The Governor's letter of May 28 to me is as follows:

DEAR MR. SETH: I understand that hearings before Senate subcommittee will begin tomorrow on Senate bill 3753.

I understand that this bill would require a certificate of public convenience and necessity to be obtained from the Interstate Commerce Commission for any extension of a pipe line or the construction of a new pipe line. This, in my judgment, would seriously hamper the development in New Mexico, and the bill should be defeated.

You are hereby appointed to represent the State of New Mexico to appear at such hearing and use every effort in opposition to the bill.

Very sincerely yours,

JOHN E. MILES, Governor.

Mr. Chairman, I have with me the original of the Governor's letter, directing me to represent the State of New Mexico here. I should like to file this letter with the committee.

Senator JOHNSON of Colorado (chairman of the subcommittee). We shall be very glad to have you do so.

(The letter referred to is filed with the clerk of the committee.) Mr. SETH. Just 10 years ago the production of oil in New Mexico on a large scale began. This production has gradually increased and now the State's allowable is 107,000 barrels per day.

Entirely apart from its interest in encouraging the development of a large industry within its borders, New Mexico is vitally interested in continued development of its oil resources for two reasons: First, the taxes on oil production provide about two-thirds of the funds needed for social-security expenditures and about one-third of the funds needed for the maintenance of public schools. Any curtailment of these taxes would seriously affect both these activities; second, the State is the largest owner of oil royalty within its borders. It owns more than 40 percent of the proven oil area within the State. The funds derived from royalty payments are held as a permanent fund and invested for the benefit of the common schools and other State institutions. The income from this permanent fund so invested provides an important part of the funds available for the public schools. I might add that these royalty payments now amount to about $2,000,000 a year.

Naturally the State has a direct interest in the production of oil and naturally is opposed to any legislation that tends to hamper further development.

There is consumed in the State of New Mexico in refined products only the equivalent of about one-twelfth of the amount of crude oil produced. Actually there is refined in the State only approximately 3,000 barrels per day, leaving 104,000 barrels per day that must be transported in interstate pipe lines.

All of this 104,000 barrels per day must be transported into and through Texas, principally to the large refineries on the coast of the Gulf of Mexico. Anything, therefore, that affects or hampers the interstate pipe lines affects the interests of New Mexico. The continued development of the State's oil resources is directly dependent on these interstate pipe lines.

The bill under consideration if enacted into law will, we think, hamper further oil development in New Mexico for the following

reasons:

First, when any new oil pool or possibly any new well is brought in, the producer cannot know whether or when he will get a pipe-line connection to transport his oil. If he ultimately gets the connection, it will be only after a delay of months or perhaps years if any railroad or other interested party contests the pipe-line extension or new line before the Interstate Commerce Commission or in the courts. This will, of course, cause the wildcatter to hesitate to start any new development.

Second, it is a well-known fact that rail transportation of crude oil costs nearly three times as much as pipe-line transportation. The possibility that a pipe-line connection may be denied and that any oil produced may have to be transported by rail will in itself prevent attempts to develop new pools in the State. Wildcat ing at best is very hazardous, and the proposed bill adds to the hazard without any resulting public benefit that we can discover.

Third, the bill would encourage monopoly. If one pipe line is built to a pool, it could and would possibly contest the building of another line to the same pool. While the rates of transportation would be controlled by the Interstate Commerce Commission, if there be only one pipe line to a pool the purchase of oil would depend on the needs of the companies with whose refineries the line is connected, and such companies might not need all the oil that the pool might be able to produce under the State allowable.

Fourth, all of the production now shipped out of the State comes from two counties in the extreme southeastern part of the State, bordering on the State of Texas boundaries, and is actually transported through pools in Texas with which it comes into direct competition. There are several pools in Texas just outside New Mexico. These Texas pools might possibly ship their production through wholly intrastate pipe lines running to refineries situated in Texas. This transportation would be free from the restrictions proposed in the pending bill and these Texas pools would be given great advantage over the adjoining New Mexico pools.

During the 10 years of production in New Mexico no situation has arisen which would call for the enactment of legislation such as is proposed, nor is there anything apparent to us that would justify such legislation. On the contrary, our problem has been one of obtaining sufficient pipe lines to transport our oil. The proposed bill if enacted would furnish a plausible pretext for any pipe line to refuse to extend its line to a new pool within the State.

New Mexico is largely undeveloped. It has a good start on the development of its oil resources, and it objects to legislation of the type which will stifle this development without any valid reason that is apparent to us.

New Mexico's production is at the end of the pipe lines. It has the long haul and consequently higher pipe-line rates. This, of course, is a natural handicap; and the State objects to any legislation which will increase this burden.

Senator JOHNSON of Colorado. Thank you, Judge Seth.

Senator REED. May I ask Judge Seth a question or two?

Senator JOHNSON of Colorado (chairman of the subcommittee). Certainly.

Mr. SETH. Yes, sir.

Senator REED. What companies buy the oil produced in New Mexico?

Mr. SETH. In New Mexico?

Senator REED. Yes.

Mr. SETH. The small production in the northwest corner of the State, on the Indian lands up there, largely went to the Little Continental refiners--some in Colorado and some

Senator REED. We have some oil up there in that country south 'of you.

Mr. SETH. Yes, sir.

Senator REED. That is small.

Mr. SETH. Yes, sir; it does not exceed a thousand barrels, today. A large part of that goes to the Continental Co. at Albuquerque.

Senator REED. As a matter of fact, the big production is in the southeast part?

Mr. SETH. Yes.

Senator REED. What are the two principal counties?

Mr. SETH. Lea County is a big producer, and Eddy County is coming in large now. The Shell is the main purchaser.

Senator REED. Where do they post the price?

Mr. SETH. They post the price in Hobbs, or wherever their office is. Senator REED. Do you know how the Hobbs posted price is related, if at all, to the Texas posted price?

Mr. SETH. It is virtually the same as the Texas prices immediately south. There is production all around.

Senator REED. Could you assure your Governor that Texas being the largest oil-producing State in the Union and not being able to consume all its own oil, sooner or later most Texas oil moves into interstate commerce?

Mr. SETH. Absolutely; but I am not quite certain, nowadays, what constitutes interstate commerce.

Senator REED. There is a little trouble, and the definition by the Supreme Court has been perhaps vague or has at least extended the meaning of the word. There is no question about that. You see, I am not a lawyer, and I hesitate in the presence of these eminent lawyers to discuss these matters; but I have it to do.

Mr. SETH. We have probably 8 or 10 purchasers of the oil in southeast Texas.

Senator REED. And they pay you the same posted price that they pay in the pools in Texas?