Evening star., 1943-07-16

VI LtttCo OutLtIttty LftS ooNfeSf oN't"
OF the latest controversy oDer the
historic Elk Hills oil reserDe in
California;
BY CARTER BROOKE JONES.
Crux of the continuing argument
over the Cancelled Elk Hills oil re-
serve contract between the Navy
and the Standard Oil Co. of Cali
fornia is whether the agreement
protected the Governments i'm
portant reservoir of underground
petroleum and whether the cor
poration was granted excessive,
monopolistic concessions.
These issues are concerned in the
broad question of public policy
which a congressional committee is
investigating. Legally the issue Is
whether the Secretary of the Navy
had authority, under the Act OF
1888, which governed the transac-
ton, to negotiate such contract.
Secretary Knox announced that
the contract, would be Cancelled, by
mutual agreement of the Navy and
the company, as soon as necessary
ARRANGEMENTS could be worked out.
He took this action after the
Justice Department termed the pact
both illegal and against public pol
icy.
Good Contract, Says Navy.
The Navy, however, still insisted
it was a good contract, eStirely in
the Governments interest, and Mr.
Knox explained: We're in a war
now. Let's not squabble over this
particular contract, over the dot
ting of an s. Let's get contract
that will be approved
The contract called for Standard
to sell Navy it's surface holdings
on the Elk Hills reserve, nearly a
third of. the entire field. Navy.
owning two-thirds of the field, gave
Standard exclusive drilling rights
to the combined lands. Standard
was to be allowed to take oil from
it's land for the first five years Of
the contract at the rate Of $4,000
barrels a day or a maximum Of 27,-
100000 barrels for the period, which
was to be extended If the war
lasted longer.
After that, Standards production
would virtually cease-with 750-
barrel-a-d day limitation until the
Navy decided otherwise. Navy was
to pay its share of the cost OF de-
velopment. after an initial payment
of S1.748.4O875 to Standard. Navy
was to receive, eventually, "a per
cent of Standards production, but
nothing the first five years and
with Navy's share of the expenses
deducted unless Navy should choose
to pay in cash.
Small Part in Other Hands.
Navy was to receive its portion
of the profits" in refined petroleum
products, in gradual payments, after
the five years. A small part of the
reserve, amounting to 800 acres, is
owned by the Kern County Lead
Co.. and it was planned for the
Government to buy the land, but no
deal has been made for this seq
ment.
Standard. said Assistant Attorney
General Norman M. Litten, in an
opinion holding the contract illegal
and against public interest, had a
choice between keeping a 100 per
cent interest in less than l9 per cent
of the reserve (by acres) or acquir-
ing a SO per cent interest in 100
per cent of the reserve, with Gov
ernment funds in the form of oil
production advanced to Standard
in order to explore and develop the
property, plus guaranteed oper-
ating monopoly in perpetuity for all
crude produced in the greater area"
In terms of legal conclusions, he
added, all the compulsions in the
contract "operate to force the full
production of Elk Hills if the Gov
ernment is ever to recover what
Standard will owe after five years"
Sees Policy Abandoned.
He had pointed to a provision al
lowing Standard to pay in prod
ucts "at a rate equivalent to the
value of one-third only of Stand
ards share of production after the
first five years" He saw abandon
ment of the long held policy of con-
serving the Navy's oil in the ground
as long as possible-a policy re-
stated in the act of 1888 There was
nothing in the contract, he con-
tended, to force the company to pay
in cash or in some way other than
the method described.
TT is difficult" Mr.. Littell added.
"to conceive of Navy officials con-
tinuing to purchase petroleum and
petroleum products on the Pacific
Coast and endeavoring to justify
appropriations therefor in the face
of credit mounting year by year
on the books of the Standard Oil Co.
which could not be legally recov-
cred except through payments at
the rate of one-third of Standards
share from the production of Elk
Hills"
Mr.. Littell also contended that
the Government would pay it's share.
81 per cent, of the production ex-
penses tWice-once in advance.
through deductions from the refined
products it had coming, again when,
after the war, when competitive
conditions hadA been restored to the
Pacific Coast, it would be forced to
accept Standard products at the
company's posted prices" These
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