Mr. BROWN. The Texas Railroad Commission has started a series of hearings to regulate the "oil-gas" ratio, so as to permit only the reasonable, or necessary amount of gas to be produced with the oil.

"Oil-gas" ratio is merely the ratio of the quantity of gas produced with a barrel of oil.

"Dry natural gas" is a term applied to natural gas that is not found in the same formation with the oil.

You will also find natural gas having essentially the same characteristics in solution in the oil in many pools. When the oil is brought to the surface and reduced to atmospheric temperature, the gas in the solution comes out, and this is the gas that is termed casinghead gas.

Now, the commission is attempting to regulate that oil-gas ratio, and to eliminate the waste from that source.

Many of the sweet gas wells formerly connected to stripping plants are now connected to the pipe lines. Three companies with small acreage holdings have started purchasing gas from others. The situation today is the best it has been in 5 years, and the resultant decision of the Texas Supreme Court in its interpretation of rule 37 in the Brown-Humble case has offered much encouragement to the hope that the "law of capture" may be so modified that the corre lative rights under the Texas rule of property may offer a permanent remedy.

Now, a lot is bound up in that little package there, and I do not know to what extent you men would like to have us take time to try and explain that situation. I will try briefly, though, to state it in a few words. The law of capture in Texas as in other States is the source of evil confronting the oil and gas men today.

Now, in Texas, the landowner under the Texas rule of property has a title to the minerals in place, but under the law of capture, as it has been applied, the producer may reduce to possession any amount that he can capture.

Now, the thought expressed under the interpretation of the Texas Supreme Court in the Brown-Humble case was that the railroad commission in the issuance of permits for the drilling of wells could make certain exceptions and allow wells to be drilled on smaller tracts, but in so doing they should regulate the amount of oil that could be produced, so as to take into account the size of the lease and indirectly the amount of minerals in place.

So to that extent the law of capture is under this decision modified so as to more nearly protect the correlative rights of the landowners, both large and small, and that is, I think, the aim of the companies today, to pursue that thought and encouraged by that decision to try and get through the Texas Legislature, the passage of a bill that will prohibit we or anyone else from taking more gas or oil than some regulatory body determines to be the fair amount in place. Now, it is ideal, probably theoretical, and yet it is the most equitable way of solving the problem.

Mr. COLE. What is the date of the Brown-Humble decision? Mr. BROWN. That is what we are interested in. I beg your pardon, Mr. Cole.

Mr. COLE. What is the date of the Brown-Humble decision? Mr. BROWN. I would say that it is not more than six months old; probably not more than five.

Mr. COLE. Well, is there not a later decision than that? Mr. BROWN. Well, the Supreme Court has been asked to review that decision and they have sustained their original decision on it. There have been, I think, two reports on that.

You may mean the one about 2 weeks ago, Mr. Cole, where I think the railroad commission was enjoined under this same rule, or was asked that the railroad commission be enjoined for failure to grant a permit for the drilling of a well. Can you give me a little bit more of the facts regarding the case you have in mind?

Mr. COLE. No, I do not have the decision before me; but first, the Texas statute of 1935 covered this subject pretty fully, did it not? Mr. BROWN. No, not this phase of it; it did not.

Mr. COLE. Not dealing with the natural-gas fields?

Mr. BROWN. But, I thought you meant the correlative rights.
Mr. COLE. Well, correlative rights also.

Mr. BROWN. I will tell you, Mr. Cole, are you thinking of or discussing the 1935 law which was known as Texas House bill no. 266, the more recent decision in the Texoma case?

Mr. COLE. Yes.

Mr. BROWN. That is the case.

Mr. COLE. Yes. It was called to my attention by a newspaper clipping.

Mr. BROWN. Yes. Well, I think that that decision is one that is worthy of discussion and Judge S. A. L. Morgan, of Amarillo, who has been an attorney in all of those cases is here, and I would like very much, upon the conclusion of my statement, or following Mr. Gallagher, as seems best, for him to devote a little time to that.

Now, he is better qualified to discuss those legal phases than I, and he is more familiar with the operating conditions as well, and I am sure that he can give you a very good account of the decision, its effect upon the field today, and what its probable effect will be in the future.

It has been suggested that we let Judge Morgan go on now, but I only have about a page more to complete my statement. I think it would be better not to break the continuity.

Mr. COLE. You complete your statement before Mr. Brown testifies.

Mr. BROWN. All right.

The attorneys for the gas companies have been working on the theory, and it appears that no State or Federal constitutional rights would be infringed if the legislature delegates to the railroad commission authority to so regulate gas production as to allow each owner to produce only that amount underlying his lease. Obviously, fault can be found with any theory advanced, but none to date offers a more equitable solution for protecting the correlative rights of all. Texoma has consistently advocated this plan.

The concern of the public today is more with conservation of natural gas than with rate regulation and price control. There are very few instances today where State commissions are quarreling with interstate gas pipe lines over wholesale rates. H. R. 11662 is a pipeline control bill and not a conservation measure.

Questions asked here by members of this committee indicate a far greater concern over conservation and elimination of waste than price

regulation. It seems doubtful that there is a genuine public necessity for the regulatory form of legislation proposed by this bill. Ruthless waste has been practically eliminated. In the light of recent developments we doubt that it will be necessary for the Federal Government to take a hand in the conservation problem. The public has been aroused and waste has been and is being rapidly curtailed within practical operating limits.

Now, I would just like, in defense of the pipe lines and this Panhandle situation, and as evidence of our interest in conservation, to refer to an incident prior to you and your committee's visiting the Panhandle, Mr. Cole. The late Judge Ames, who was chairman of the board of the Texas Co.-and the Texas Co. is very heavily financially interested in this pipe line-I think wrote a letter and urged that you and your committee go to the Panhandle and witness that terrible sight of over a billion feet of gas going into the air daily. Well, we had been wrestling with that problem for a couple of years and instead of getting better it seemed to be getting worse, and we were anxious that you and the members of your committee see it, and as Judge Ames expressed himself at that time, we thought we might have to call for some help from the Federal Government to try and get the situation corrected.

Well, at our appearance here last year on title III we told you that there was considerable evidence in the Panhandle at that time, and that we thought that forces were moving that would soon see the situation improved, if not corrected, and we asked at that time that you give us a little longer to work with the problem and see if we could not straighten it out. Now, we are here today telling you, with the same frankness, that we think we have it in hand and we think there is a better understanding of it, and we feel today that there is not any need for the Federal Government to take a hand in our conservation problem. If, however, it develops we cannot handle it and we are too optimistic about the way the thing is going, we will be equally frank in coming back and asking for help; but I would just like to make that statement as evidence of our concern over conservation and the fact that we did come in and ask your committee to inform yourselves on conditions so that we could get some help if we could not handle it ourselves.

Mr. COLE. At the bottom of page 9 of your statement, you say: There are very few instances today where State commissions are quarreling with interstate gas pipe lines over wholesale rates.

Can you tell the committee what instances you have in mind where such quarrels exist?

Mr. BROWN. Well, I was trying to be conservative and give the benefit of the doubt to the proponents of the bill. I cannot name you any. I do not know of any. But, I was trying to be conservative on that, Mr. Cole.

Mr. COLE. At the outset, in the early part of your statement said: Possibly State regulation should be supplemented by Federal control of interstate activities.

Why did you make that statement? What was the basis for it? Mr. BROWN. Well, there again, I think it would be a presumption for any man to make the definite statement that it would be of no value. It might have some value, Mr. Cole. I cannot anticipate any. I can anticipate where it would be difficult, and there would be many difficulties, and those I have tried to outline, but to give the benefit of the doubt to the drafters, the makers of the bill, who might think there might be some, I am willing to concede there might be some. I cannot anticipate any.

Mr. COLE. Then you went on from that point and said:

In some instances it

referring to Federal regulation, I presume

might prove beneficial to the public as well as to the transmission company. Now, just what do you have in mind that the Federal Government should do in order to support that statement?

Mr. BROWN. Where it would be of benefit to the transmission company?

Mr. COLE. You tell the committee very frankly that possibly State regulation as it now exists should be supplemented by Federal control of interstate activities.

Mr. BROWN. Yes.

Mr. COLE. And in some instances that would prove beneficial to the public as well as to the transmission companies.

Can you not be a little more specific and point out to the committee the reasons for making that statement, wherein Federal control of interstate activities would prove beneficial to the public and also to the transmission companies? You say that this bill, for instance, embodies one plan that the author evidently feels would be of a beneficial effect to the public as well as the transmission companies, and I was wondering whether you would accept that.

Mr. BROWN. Well, I think that the advantages are greatly overweighed by the burdens and the disadvantages, Mr. Cole, but I think that it is conceivable to any fair-minded person that a commission attempting to fairly determine the equities of any problem as between the pipe line and the consuming public can see that fair play is done to both sides, that the consuming public and the pipe line could or might be benefited. I do not know that I can give you a very good case; but it is possible. Well, I do not know, I do not believe, I can give you a good example, Mr. Cole, of where there would be any particular advantage to the public or the pipe-line company, either one. My thought in making this statement, Mr. Cole, is simply this. I do not like to appear here in an argumentative, destructive position. I would like to take the position that the drafters and the authors of this bill undoubtedly could see certain advantages that I cannot see; but in giving them the benefit of that doubt, this statement is made.

Now, I cannot see that there are any advantages that will accrue to the consuming public or to the pipe-line company that are not greatly outweighed by the disadvantages, and I think I have to be more definite and say I cannot see any advantages, Mr. Cole.

I regret that this statement may have created the wrong impression there. I was merely trying to give due credit to the proponents of the bill.

Mr. COLE. I think it is quite clear, and I get the definite impression that it means just what it says.

Mr. BROWN. I regret that statement has caused some confusion, and I wish to repeat what I have said to you. It is merely in deference to the other people. It is a rather severe position for a man to just say there is nothing to the bill, and I would like to give credit to those men who say there is something I cannot see.

Mr. MERRITT. You just wanted to be nice to the committee?
Mr. BROWN. I think that is right.

Mr. COLE. You will have an opportunity, Mr. Brown, in going over your testimony, to make corrections, but not to take out your prepared statement or anything in support thereof.

Mr. MERRITT. Mr. Chairman, may I ask a question?

Mr. COLE. Mr. Merritt wants to ask you a question.
Mr. BROWN. Yes, sir.

Mr. MERRITT. Is it not true, Mr. Brown, that the opinion on the first page of your statement is modified by something that appears on the second-namely, that you contend that if the commission is going to regulate your product, it should also regulate the price of oil and coal?

Mr. BROWN. Well, Mr. Merritt, my thought was not to urge for the regulation of these other fuels. I think that would be uneconomical and would be an unfair burden upon those other industries, as it would be upon ours.

Mr. MERRITT. What I am getting at is, there is no more necessity for regulating one than for regulating the others.

Mr. BROWN. If you place any one under regulation, you will place them at a decided disadvantage over the others. That is right. Mr. MERRITT. Your point is, as I understand, that competition between those three fuels is sufficient regulation now?

Mr. BROWN. That is right.

I think that is all, Mr. Chairman. I thank you.

Now, I would like to have Judge Morgan take the stand and tell you of the Panhandle situation, if he may.

Mr. COLE. We will be glad to hear Judge Morgan.

STATEMENT OF S. A. L. MORGAN, AMARILLO, TEX.

Mr. MORGAN. My name is S. A. L. Morgan. I live at Amarillo, Tex., and am in the general practice of law. Among those whom I represent is the Texoma Natural Gas Co. I represent other interests, including royalty owners and those who are directly and indirectly interested in the gas fields and in their preservation.

I have been connected with all of the litigation between the State railroad commission and the gas companies. There have been four groups of suits filed. The first group of cases was known as the common purchaser of cases. The second, the shut-down cases. The third, the market-demand cases, and this last group concerning which Mr. Cole asked Mr. Brown a few minutes ago, is known as the Texas house bill 266 cases.

Mr. COLE. That is the 1935 law?

Mr. MORGAN. That is the 1935 law.

In 1935 the Legislature of Texas enacted a statute known as Texas house bill 266.