Mr. KAZEN. This is in California? Mr. GILLETTE. Yes, sir. Mr. KAZEN. I have no further questions. Mr. EDMONDSON. Any questions, Mr. Witmer? Mr. WITMER. No questions. Mr. EDMONDSON. Í have one further question now. Would you speak on your view of the renegotiation language that is contained in the administration bill and the problem that it presents for you? Mr. WOLTER. Mr. Edmondson, I am afraid we would not be able to subject ourselves and our stockholders to that type of problem. We have to know ahead of time what our costs will be. Of course, the royalty is very important. We have to get the proper rate of return on our money. We have considerable risk. If we knew that every 2 or 5 years we were going to have to renegotiate and have our costs raised, I think we could find other places to spend our money. Mr. EDMONDSON. What do you think would be the minimum period for the interval between renegotiations? If there is an insistence upon renegotiation rights, what do you think the minimum period would be? Mr. WOLTER. Mr. Edmondson, I just cannot help but believe that the Congress will not do that to us. You have not done that to us under the Mineral Leasing Act or under the Outer Continental Shelf Act. I think figures were out here this morning that Louisiana bought last Tuesday over $1 billion. If you think any of us could afford to bid on an offshore lease if we had to renegotiate our royalty or if we knew it would be increased, you would not have a dollar on the table. We couldn't afford it. Mr. EDMONDSON. We are dealing with something of a little more determined value when we talk about oil and gas than we are in geothermal steam. I hope you recognize the problem which confronts the Government in this regard, because we are really without basic knowledge of the values. That is the problem. Mr. WOLTER. That is all the more reason that we should not be restricted. I would not care to answer that, Mr. Edmondson. I would not care to speculate what would be a reasonable period. Mr. EDMONDSON. Mr. Gillette? Mr. GILLETTE. I would have to agree with Mr. Wolter on that, sir. The question is almost impossible to answer. If someone is going to take something away from you, it is very difficult to arrive at a point where you can say it is reasonable to take it and assist in the execution. Mr. EDMONDSON. It is something you do not have in your hand yet. Mr. GILLETTE. Indeed we don't. Mr. EDMONDSON. What about it, Mr. Olpin? Do you feel renegotiation rights, say at intervals of 10 years, would prevent development by Mr. Rowan or your other clients? Mr. OLPIN. It is hard to tell. If we get down to the point where it looks like this must be an ingredient of the bill, I would suggest it should have two elements. Certainly Interior agrees that 5 years is too often. It seems to me that the initial renegotiation, the first time after the lease is issued, should be considerably in the distance, maybe 30 years or so, and then the renegotiation, as suggested by Mr. McCabe yesterday, should have some kind of boundary put on it, the percentage increase that can be made on the royalty. If renegotiation is necessary, that kind of restriction, I think, would be essential in order to attract capital. Mr. LOEB. I might say I cannot think of a greater conflict than the concept of competitive bidding with a renegotiable contract. In calculating a competitive bid, you must look ahead to the profit that you can reasonably expect. How can anyone anticipate the amount of a bid if there may not be anything but a very skimpy profit as a result of renegotiation of the royalty? Mr. OLPIN. I think that is a good point, because at the time of renegotiation the thing likely to be considered is the return on the dollars that have been spent in putting in the plant and facilities, and I am not sure that the variable of the amount bid will automatically be taken into consideration. In fact, I suspect it would not. Mr. EDMONDSON. What the Government is looking at is the possibility that you might drill for steam supply for power for a town like Crockett and discover that you had capacity in that area to provide power for a city like San Francisco. The unknowns present in that situation are such that I can understand the request of the Department of the Interior for the committee's consideration of this language. I am certainly not wise enough to know the answer to this which will assure development at the same time. That is why I was putting these questions to you gentlemen. Are there any other questions of these witnesses? I want to congratulate all of you for your constructive suggestions. The questions you have posed to us are helpful, also, Mr. Olpin. This is a place where we have an abundance of questions and a shortage of answers. Mr. OLPIN. I am sorry to have added to that burden. Mr. EDMONDSON. They still serve a very useful purpose. We shall ask Interior to comment on each of the questions you have raised and see what answers they come up with. Maybe somewhere in the maze of questions and answers we will come up with some wise answers. I know everyone on this committee is most desirous of getting a bill and of having a bill which encourages private initiative and private participation in this development in every reasonable and fair way. It is unfortunate in some ways that the public lands are so indispensable to this development, because from my personal point of view, I would very much prefer to see the development go forward on private lands on a little broader scale before we try to write legislation for the public lands, but it looks as if we will have to operate with less information than we like to have. I thank all of you for your patience. (Answers to Mr. Olpin's rhetorical questions follow:) Hon. ED EDMONDSON, U.S. DEPARTMENT OF THE INTERIOR, Chairman, Subcommittee on Mines and Mining, Interior and Insular Affairs Committee, House of Representatives, Washington, D.C. DEAR MR. EDMONDSON: At the hearing on geothermal steam bills on June 16, 1967, before your Subcommittee, Mr. Owen Olpin posed certain rhetorical questions on which you have requested us to comment. Theapplicableportionsofthe tions on which you have requested us to comment. The applicable portions of the transcript and our responses are set forth below. "Mr. OLPIN. First, on the subject of conversion or the grandfather clause, Interior has said, 'We are unable to endorse rewards for indirection.' "The rhetorical question I suggest, were not the miners who entered public lands before the passage of the mining laws of 1860 (sic) and 1872 also guilty of such indirection and should not Congress have treated them as trespassers? "Secondly, on the acreage "Mr. EDMONDSON. Would you repeat that question again? "Mr. OLPIN. Yes, I would. "Were not the miners who entered public lands before the passage of the mining laws of 1860 and 1872 also guilty of such indirection and should not Congress have treated them as trespassers?" It is true, of course, that the miners on the public lands prior to the enactment of the Act of July 25, 1866, c. 262, § 1, 14 Stat. 251, enjoyed no Federal sanction for their activities. United States v. Parrott, Fed. Cas. 15,998 (C.C. Cal. 1858) established that the United States was entitled to an injunction enjoying mining on land claimed by the Government as Federally-owned. Lindley on Mines, 2nd ed., vol. 1, § 41, explicitly recognized that ". . . these pioneer miners were all trespassers. They had no warrant or license from the paramount proprietor." But Lindley also expressly recognized the unstructured conditions that prevailed at that time. He quotes Colonel Mason who visited the scenes of the earliest mining operations in California,' as follows: "The entire gold district, with very few exceptions of grants made some years ago, by the Mexican authorities, is on land belonging to the United States. It was a matter of serious reflection with me how I could secure to the government certain rents or fees for the privilege of procuring this gold; but upon considering the large extent of country, the character of the people engaged, and the small scattered force at my command, I resolved not to interfere, but permit all to work freely." The foregoing clearly demonstrates the absence of a climate for enforcement of law and order. In contradistinction, to permit persons in this period of time when we live in a highly structured society to take or utilize the property of another without legal sanction, or to reward them for such efforts, is certainly far from desirable. Mr. Olpin's question inferentially suggests that prior to 1866 there was no congressional recognition of mining on the public domain. As early as 1851, (10 Stat. 926, 932), a treaty guaranteed Peruvian citizens the same privileges in working California gold mines as were accorded to citizens ". or subjects of the most favored nation." In sum, for the period prior to 1866, economic, social, governmental, and law enforcement conditions were substantially different from those of the 1960's, and the attempted analogy is unsound. Mr. Olpin also stated: "Secondly, on acreage limitation, we have heard from Interior, 'no one person should be permitted to control so much of the geothermal resource in any one State, at least in this embryo stage of development of the resource.' "My rhetorical question, what control of geothermal resources is represented by holdings of 51,200 acres in one State if experts of the Department of the Interior found in February of 1967 that there were over 80 million acres of public lands potentially valuable for geothermal steam? The application for withdrawal, to which he adverted, affected public lands "which are valuable or prospectively valuable for geothermal steam." The term "prospectively valuable" has been variously defined. However, it is merely a broad category to eliminate from further immediate consideration those lands that on geologic evidence are considered unfavorable for the occurrence of geothermal steam. Thus, a finding that land is prospectively valuable simply means that the geology is such as not to preclude the existence of geothermal steam. The degree of value may vary from near zero to near certainty. Of greater significance than the original application for withdrawal is the revised one of March 21, 1967, which described the "known" to be valuable areas, aggregating 1,050,900 acres. These are gross acreages and include private lands. The public lands included in that acreage aggregate approximately 639,000 acres, comprising 550,000 acres in California, 16,000 acres in Idaho, 16,000 in Montana, 17,000 acres in Nevada, and 40,000 acres in New Mexico. Thus, if the 51,200 maximum State acreage limitation was to be retained in the legislation, a single company could conceivably obtain in four of the five States all the public lands known to be valuable for geothermal resources. "Next on the subject of competitive bidding, Interior has said competitive bidding will tend to hasten development because of the initial investment in bidding on the lease and to discourage the lessee from holding the leased land for speculative purposes. "This time I can think of two rhetorical questions. The first, Does our history tell us that the pioneer developers of our natural resources have been corporate giants with money to prevail in competitive bidding, or perhaps those with less money but greater dreams and more ambition and guts? I point to Mr. McCabe and Magma Power Company. Mr. McCabe testified yesterday, you will recall.” It is true that many of the pioneer developers of our natural resources have been individuals of limted means. The hard fact is that geothermal steam development will require considerable capital to be expended, and we are not aware that large corporations which have manifested interest in geothermal steam development will not pursue it as diligently as individuals or smaller companies are likely to do. "My second rhetorical question on competitive bidding: Will exploration and development of wildcat or unproven land be hastened by a law which tells the would-be pioneer that when he finds geothermal prospects he may have a lease if he bids higher than those who waited and watched in the wings?" This question raises the issue whether leases on wildcat lands should be awarded on a "first come first served" basis, or on a competitive bidding basis. Obviously, the person who has found geothermal indicia, with respect to a particular piece of land, is in a much better position to make an informed bid than those who waited and watched in the wings. Moreover, competitive bidding does promote exploration and development for the simple reason that persons ordinarily do not bid at competitive sales for speculative reasons. Our experience with oil and gas has demonstrated quite clearly that the noncompetitive method of awarding leases often results in the acquisition of such leases by persons who have no intention whatever of developing the resources. "Finally, on renegotiation, Interior has told us that their bill 'requires the Secretary to include a renegotiation provision in each lease and to provide for the exercise of that authority at such reasonable intervals as the Secretary may prescribe by regulation.' "My question: Will capital investment in geothermal steam be encouraged if the geothermal lessee is told he can rely on the royalty rate and other provisions in his lease until the Secretary decides by regulation that it is time to renegotiate?" Obviously, capital investment is not encouraged by any kind of renegotiation provision which might result in a higher cost to the lessee. The purpose of renegotiation is to assure that the product is sold at a fair price. We had indicated in our testimony that renegotiation would be made only in accordance with the regulations prevailing in the time a lease was entered into. Therefore, Mr. Olpin's intimation that the Secretary could change the terms of a contract by later regulation is not correct. We appreciate the opportunity to set forth our views on these matters. HARRY R. ANDERSON, Assistant Secretary of the Interior. Mr. KAZEN. One further question, Mr. Chairman. Of the 200 acres now in production, how many are in public lands? Mr. GILLETTE. None whatsoever. They are all on private lands. Mr. KAZEN. Have you gentlemen discussed this situation with Interior? Mr. GILLETTE. I have not. Mr. WOLTER. No. Mr. OLPIN. No. Mr. WOLTER. They were here last year at the hearings, and we had the same philosophy then. We met them over on the Senate side in March where we begged for the 51,000-acre limitation. I am sure they are well aware of our position. We would be happy to discuss it with them. I do not think they are very flexible, from what I have seen, Mr. KAZEN. I was just wondering, judging by this discussion, whether there had been an exchange of ideas. Mr. EDMONDSON. I guarantee you some of them are available if you gentlemen would like to meet with them. Mr. GILLETTE. We would be very happy to met with anyone we can speak to on this. Mr. EDMONDSON. I think they would be glad to meet with you at this time. Mr. HOSMER. It might be somewhat fruitless. Last year we all sat down together once and we sat down together again and we thought all the gears were meshed and everything was fine. It turned out to be quite the contrary. As a matter of fact, when Mr. Aidlin yesterday stated that he was making his observations about Interior's position friendly and without rancor, I could not understand how he could contain himself, but apparently he was able to bridge that psychological gap. Mr. EDMONDSON. The chairman's office is available for a conference if you gentlemen wish. Mr. ÖLPIN. We have a very serious problem in that two of us have a 1 o'clock plane. Mr. EDMONDSON. Have you checked out already? Mr. OLPIN. We have checked out of the hotels, and we are on the only plane we could get on. If discussion would be useful, I am sure we would be back here or I would be happy to go along with any discussions that the Signal people might be able to have with Interior. Mr. GILLETTE. We would be very happy to do that. Mr. EDMONDSON. I do not have authority to commit Interior to any conference outside of this immediate area, but I can say right now we could get them into a brief meeting with you if you wanted to talk over some of these problems. In view of your limited time, you will have to independently launch your negotiation efforts. We do have one further witness that I would like to hear briefly. I want to thank all you gentlemen again for being here and for your presentation. I appreciate your being with us. (COMMITTEE NOTE.-The information requested by the chairman regarding lands now under claim or lease and which may be subject to conversion under a grandfather clause follows:) COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, House of Representatives, 1324 Longworth Office Building, Washington, D.C. (Attn: Mr. William L. Shafer.) AIDLIN, MARTIN & MAMAKOS, GENTLEMEN: I enclose herewith schedule of claims held in the name of, or under lease by, Magma Power Company as requested by the Subcommittee on Mines and Mining at the hearings concluded on June 16, 1967, relating to disposition of geothermal steam and associated geothermal resources on public lands. The items listed under sections A and C are held by Magma Power Company under joint venture agreement with Geothermal Resources International. Additionally, Magma Power Company and its joint venturer Thermal Power Company hold under lease in The Geysers area in Sonoma County (and a little in Lake County, California) a total of approximately 1,752 acres of fee lands patented under the Stock Raising Homestead Act under which minerals were reserved to the United States. Signal Oil and Gas Company, on behalf of itself and its associate M&T Incorporated, has filed mining claims and holds oil and gas leases on these lands. It is my understanding that Signal Oil and Gas Company will schedule these lands among its present holdings. Therefore, in order to get a true picture of the total acreage involved, a duplication should be avoided in computa |
