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 Magna Power Co. Mr. Cabe testified yesterday, you will recall.

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?

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?

Those are not new questions. They have been suggested by the committee. They are things that occurred to me that I think summarize what you have heard this week. With that, I will wait until time for you to ask questions of all the witnesses. Thank you very much.

Mr. EDMONDSON. You gentlemen may hold your seats, if you want to, and provide an additional chair for our next witness, Mr. Wolter. STATEMENT OF EMMET E. WOLTER, MANAGER OF LANDS, EXPLORATION DEPARTMENT, SIGNAL OIL & GAS CO., LOS ANGELES, CALIF., ACCOMPANIED BY JOSEPH H. LOEB, LEGAL DEPARTMENT Mr. WOLTER. Mr. Chairman, my name is Emmet Wolter, and I am manager of lands for Signal Oil & Gas Co.

I have a statement I would like to file for the record in the interest of time. I have been here before, taking your good time. We appreciate your continued interest. If the Chair would permit, I would appreciate that opportunity.

Mr. EDMONDSON. Without objection-and there is none-the statement of Mr. Wolter will be made a part of the record at this point. (The statement follows:)

STATEMENT OF EMMET E. WOLTER, MANAGER OF LANDS, EXPLORATION DEPARTMENT, SIGNAL OIL AND GAS COMPANY, LOS ANGELES, CALIF.

Mr. Chairman and distinguished Members of the Committee, my name is Emmet E. Wolter, and I am Manager of Lands, Exploration Department, for Signal Oil and Gas Company, Los Angeles, California. I, my Company and associates do very deeply appreciate the continued interest of your Committee in developing legislation which will enable the leasing of the Public Domain for geothermal resources. I also very deeply appreciate your courtesy in permitting me to appear before you today and express our views on this important legislation.

I wish to state our strong support for the Bills H.R. 4740, which has been introduced by Congressman Johnson and H.R. 715, which was introduced by Congressman Hosmer. We feel that both H.R. 4740 and H.R. 715 are highly responsive to the best interests of the United States, and of the embryo geothermal industry. Signal and M and T Incorporated of San Francisco, California, are partners in a joint venture to explore for and develop geothermal resources. Our initial interest and activities are principally confined to The Geysers Area in Sonoma County, California, where for the past five years we have conducted extensive geothermal exploration, and where we have undertaken to aggregate leases into economically feasible development blocks. We believe that justifiably we are pioneers in geothermal exploration.

Our geothermal exploration activities over the past five years have now led to the actual drilling of our first geothermal well in The Geysers Area on a lease covering private fee lands. The drilling of this well is the follow-on result of our substantial investment in time and money in geothermal exploration, and in acquiring the necessary leases on fee lands. In addition, we plan to drill three more exploratory wells this Summer-and these will also be located on private fee leases covering other prospects in The Geysers Area.

Should any of these exploratory wells be successful, we will, of course, have immediate and large development drilling programs in the respective prospect

areas.

Checkerboarded and interspersed with our private fee leases, and included within what we consider to be economically drillable blocks of acreage, are two types of federal lands: (1) Stock Raising Homestead lands in which the minerals are owned by the United States, and (2) Public Domain in which the United States owns both the surface and the minerals.

To date, our acquisition of leases on private fee lands in California totals in excess of 25,000 acres. We have studied the geology, and performed geophysical survey work on these lands, and also on another approximately 15,000 acres of Federal lands on which we hold Federal oil and gas leases and/or placer mining claims. Our geophysical exploration has consisted of infra-red, gravity, magnetic and heat flow surveys and we also have employed photogeology and geochemical surveys. We are considered basic pioneers in the development of diagnostic geothermal exploratory methods.

At this point, I wish to emphasize the importance of the "grandfather clause" contained in Section 4 of the Bills H.R. 4740 and H.R. 715 in that the "grandfather clause" alone, make is possible for pioneers such as ourselves to put together economically drillable blocks of leases where both public and private lands are so checkerboarded and interspersed in the same areas. The assurance of the privilege of leasing on the Federal lands, which are interspersed within these economically feasible blocks, is a must for those of us in this infant industry if development of geothermal resources and the production of cheap electric power in these initial areas where we have now completed the necessary early exploration is to move forward with any degree of promptness and magnitude. The intermixture of private and public lands which occurs in The Geysers Area of Northern California also occurs in other prospective areas of the West which have been explored by other pioneers.

Congressman Hosmer has introduced H.R. 715, which, in our opinion, should more than satisfy the Administration's criticism of the "grandfather clause." The Hosmer Bill modifies the "grandfather clause" so as to afford the Government the maximum possible revenue under competitive bidding. As you undoubtedly recall, the Administration labeled the "grandfather clause" as "unfair and unlimited." This simply is not true. Both H.R. 4740 and H.R. 715, as was the case last year in S. 1674, requires a conversion applicant to meet qualifications spelled out in Section 4 of both Bills and, additionally, this conversion right would be limited to no more than 12,800 acres of leases in any one state. The applicant would have to demonstrate that he had already made substantial expenditures in geothermal development and would be subject to the regulations of the Secretary of the Interior. H.R. 715 in Section 4, Subsection (f), introduces a new feature which offsets the Administration's complaints as to loss of revenue to the public and the accusations of a "give-away" in that it provides for competitive bidding on lands which are subject to a conversion right if they are located within a known geothermal resource area as defined in Section 2, Subsection (e) thereof, and the award of a lease to the holder of such conversion rights would only be granted if the holder met the highest competitive bid.

We hope that the Congress will continue, as in the past, to bear in mind that the development of geothermal resources in the United States is now in a very

early stage, and that final legislation should reasonably undertake to create incentives to the pioneers who must, under our system of private enterprise, develop the necessary new tools and procedures required to make geothermal steam a commercial reality. We feel very strongly that H.R. 4740 and H.R. 715 do provide the necessary incentives to indsutry to accomplish the most for the public good.

From the stringent leasing restrictions which have recently been proposed to the Congress by the Department of the Interior, it would appear that persons in some quarters of our Government may be under the impression that anyone can just poke a hole anywhere in the public lands and find a bonanza of valuable geothermal resources. Our great petroleum industry has drilled hundreds of thousands of oil and gas wells throughout this vast Country, many of great depth-and to my knowledge, not one has so far encountered geothermal steam. the geothermal potential in the public lands is as yet unknown-and the risks to investment in full scale development may yet prove to be insurmountable. However, we and the other pioneer explorers who would be eligible for conversion of leases under the "grandfather clause" of H.R. 4740 and H.R. 715 stand ready, willing and able to undertake these risks, and to prove-up the potential of this new energy source for the people of the United States.

Much must yet be done in the art of exploration which will develop new ideas in geological and geophysical surveys, to enable us to locate further geothermal prospects-the technique of drilling exploratory and developmental steam wells will require much experimentation and research-and also much must be learned in the transmission and conversion of geothermal steam to electric energy. The "state of the art" in the geothermal industry may well be compared to the oil industry in the early 1900's. I am sure that you will agree that it is extremely important that Federal geothermal legislation permit development of these techniques to proceed as expeditiously as possible. And here I wish to repeat, that the early "blocking up" of leases on Federal and private lands, which would be made possible by the conversion rights permitted under the "grandfather clause" of either H.R. 4740 or H.R. 715, would most certainly be consistent with this basic objective.

In the non-competitive leasing features, acreage limitations and firm lease terms of both H.R. 4740 and H.R. 715, we feel that H.R. 4740 and H.R. 715 follow the philosophy of the Mineral Leasing Act of 1920 with respect to oil and gas leases. The Mineral Leasing Act of 1920 has unquestionably been a valuable aid to encourage the development of Federal lands for oil and gas purposes. In our opinion, straight competitive leasing, severely restrictive acreage limitations, and adjustable lease terms, would smother the development of geothermal steam in public lands. It would not seem reasonable that anyone would be inclined to invest substantial risk capital under such restrictive conditions as are proposed in the Administration's Bill pending before your Committeenamely, H.R. 9583.

In further regard to Section 4 of both H.R. 4740 and H.R. 715, under which Federal oil and gas leases and mining claims may be converted to geothermal leases under certain controlled circumstances, in addition to commenting on this Section being vastly in the public interest because it will enable the necessary "blocking up" of Federal and private leases and permit geothermal development to go forward at the earliest possible time, I and my Company wish to thank the sponsors of both H.R. 4740 and H.R. 715 for recognizing in equity the time, effort, and money which has been expended by early geothermal pioneers in the development of the "state of the art" of the infant geothermal industry.

Conversion leases under Section 4 of either the Johnson or Hosmer Bills are not "gifts" in any sense of the word. These leases would be subject to the same royalty and other provisions as any other geothermal lease, except as to the competitive bidding feature—and under the provisions of these Bills, the Secretary of the Interior is also granted the discretionary authority to adjust and negotiate royalties so as to reasonably compensate for any estimated bonus which might otherwise accrue under competitive bidding. Under the "grandfather clause" bona fide pioneers who can show to the satisfaction of the Secretary of the Interior that they have made substantial expenditures for the exploration, development or production of geothermal steam in an area will simply be granted the privilege of leasing where they have done their work, instead of third parties who have shown no prior interest. But for the conversion rights provided under Section 4, these third parties could, of course, identify the areas of interest blocked out by geothermal pioneers, and could, without prior investment or effort, capitalize on this knowledge. Without the safeguard of Section 4 conversion rights, the flood

gates would be open to speculators and individuals who may actually have no geothermal development plans or capabilities of their own. In further efforts to develop the areas where they must complete drillable "blocks" with Federal leases, the pioneer developers would be at the economic mercy of any speculators who capture these interspersed leases.

A strong analogy can, I believe, be drawn between Section 4 of H.R. 4740 and H.R. 715 and certain features of Public Law 85-505, 72 Stat. 322, the Act providing for the leasing of oil and gas deposits beneath non-tidal navigable waters in the Territory of Alaska. Public Law 85-505 granted a preference right to the holders of Federal oil and gas leases to have incorporated into their leases, lands beneath non-tidal navigable waters in Alaska, located within the boundaries described in the original leases. Senate Report No. 1720 of the 85th Congress in reporting the Bill of the Interior and Insular Affairs Senate Committee stated:

"It appears that development of the oil resources of Alaska has been impeded because most developers are reluctant to invest the necessary sums of money subject to the chance that later legislation might open up the water bottoms to leasing by others who, without expenditure of any funds for development, could come in and acquire lands in any oil structure which might be discovered by the developers." (1958 U.S. Code Cong. and Adm. News, p. 2894)

Thus, in our opinion, there is a direct legislative precedent to Section 4 of H.R. 4740 and H.R. 715.

Again, Mr. Chairman, I wish to say how very much my Company and our associates appreciate the great amount of time and effort which you have,for over the past five years, devoted to drafting appropriate geothermal leasing legislation which will accrue to the greatest benefit to our Nation-and, which would at the same time offer the necessary incentives to our infant geothermal industry to enable us to move ahead productively in this worthwhile and interesting new energy area of our economy.

And again I wish to say how very much I appreciate your courtesy in permitting me to appear before you today.

Thank you.

Mr. EDMONDSON. I would like to suggest, Mr. Wolter, that you summarize your statement briefly for us so we can question intelligently. I have had a chance, just hurriedly, to read through the statement which was provided by Mr. Olpin, and I would appreciate your summarizing your statement.

Mr. WOLTER. We strongly support H.R. 4740 introduced by Congressman Johnson and H.R. 715 introduced by Congressman Hosmer. My statement emphasizes the need for the grandfather clause and reasonable terms, and the need for the minimum acreage limitation. I would like to introduce Mr. Loeb, from our legal department. Mr. EDMONDSON. Would you like him to appear?

Mr. WOLTER. To engage in the questioning.

Mr. LOEB. Joseph H. Loeb.

Mr. EDMONDSON. Would you like to add anything to what has been said, Mr. Loeb?

Mr. LOEB. I think not. I will stand on Mr. Wolter's brief statement. Mr. EDMONDSON. All the statements are a part of the record, and I will begin the questioning of witnesses by asking, first, Mr. Gillette and Mr. Olpin if they could give us first the dollar investment which they have on the Federal public lands in geothermal steam exploration, and what the acreage is that they feel they have a claim or a right to on the Federal public lands.

Mr. GILLETTE. Our estimate would be a dollar expenditure not to exceed $60,000, and our maximum claim on public domain acreage would be around 12,000 acres.

Mr. EDMONDSON. Have you anything to add to that?
Mr. OLPIN. No. I have no answer beyond that.

Mr. WOLTER. $150,000 in the public domain. We would also have 12,000 acres that we would claim.

Mr. EDMONDSON. I would like to ask each of you additionally what you feel the minimum acreage limitation is which should be present in this bill for holdings within a State by a single company or individual.

Mr. GILLETTE. Maximum holdings of 51,000 acres would certainly be sufficient for our purposes.

Mr. WOLTER. Mr. Chairman, I would agree with Mr. Gillette. We are deeply involved in the Geysers area. We are drilling a well right now. We are looking at potentially 35,000 or 40,000 acres that might be susceptible to exploration. If we were to settle for the 10,000 Government limitation, we would be out of business before we started. We would be limited to one particular area and we would not have the opportunity to develop elsewhere in California. It is not good exploration.

Mr. EDMONDSON. You feel 51,000 acres is the minimum figure that is essential to your operation?

Mr. WOLTER. Yes, sir.

Mr. EDMONDSON. Does that mean you feel the 51,000 limit should be available immediately, or do you feel if we placed the 51,000 ceiling on holdings that could be accumulated within a period of, say, 5 years, we would be within practical limitations that would be acceptable?

Mr. WOLTER. I would feel we need the 51,000 immediately, and that within 5 or 10 years you might want to increase it, as you did under the Mineral Leasing Act, to 250,000.

Mr. EDMONDSON. What is your feeling on that, Mr. Gillette?

Mr. GILLETTE. If we were to be interested in simply one area and did not want to expand our exploration efforts, 5,000 or 10,000 or 15,000 acres would be sufficient; but if you are conducting an aggressive exploration program, you want to look at many areas, and 51,000 would be the minimum number.

Mr. EDMONDSON. For exploration?

Mr. GILLETTE. Yes, sir.

Mr. OLPIN. If I may respond to that briefly, I think the questioning earlier this week by the committee has brought out the distinction which I do not think Interior has focused on, between the number of acres you need after you have started out and found the prime acres for a going operation, and the number of acres you need initially to explore and to find those choice acres.

Mr. GILLETTE. At this particular time there are only about 200 acres of geothermal land that is producing in California. All of the production comes from those 200 acres.

Mr. EDMONDSON. So, both of you, I think, are making the point that there is a real distinction between your requirements for exploration and your requirements for production. I assume you would respond the same way as Mr. McCabe on the point that you would be willing to yield back land that you had had available to you for exploration after a reasonable period.

Mr. WOLTER. That is automatic, Mr. Edmondson. You stake your leases and do your work, and if you do not find what you are looking for, you drop those. You quitclaim them. They are no longer chargeable against your limitation.

82-458-67—13