That statute came about as a result of agitation fostered by the pipe lines, but which spread and became a universal demand in many parts of Texas that the waste of gas in Texas be stopped.

Prior to that time, the stripping of an infinitesimal quantity of natural gasoline and the popping of the residue, embracing more than 97 percent of the heat value, into the air, making no utilization of it whatever, had become so widely practiced in the Texas Panhandle that it became almost a public scandal.

More than a billion and a half cubic feet of natural gas was being thus processed and wasted. That quantity of gas was more gas than was being then used throughout the United States for domestic and commercial purposes.

It threatened the life of the field. It threatened the supply of natural gas for numerous centers of population and, of course, threatened the investments of those who had gone in and invested many millions of dollars in acquiring and developing leases, in the building of pipe lines, and in the development of markets.

Prior to 1930-well, I will say prior to 1928-there was practically no market outlet for that gas in the Texas Panhandle, which, as you gentlemen doubtless know, happens to be the greatest deposit of natural gas yet discovered throughout the world. It had no value because the Texas Panhandle is located in a thinly populated area and it is a considerable distance from that field to the centers of population and the ordinary owner of a gas well had no means of getting his gas to the market.

A group of owners who had acquired gas properties conceived the project of piping gas to the city of Chicago, as Mr. Brown has stated. There were other groups of owners who projected pipe lines into other centers of population. In order to do that it was necessary for them to acquire large properties or leases and to demonstrate to those to whom they applied for the financing of their pipe lines that they had gas to transport through those pipe lines and to sell at the other end of the pipe lines; and in order to develop a market, as has already been stated, it was necessary, of course, that those to whom it was proposed to sell gas would be able to depend upon the pipe line to supply the requirements of the customers.

To that end, the pipe lines which were projected out of that field invested large sums of money in acreage. The entire field embraces about 1,300,000 acres of land, of which 1,000,000 acres, in round numbers, are of sweet and approximately 300,000 acres of sour gas. By sour "gas gas" is meant gas that is associated with some sulphur compound, rendering it unfit for use for domestic purposes or for fuel purposes, for that matter, without its being treated at a cost ranging up to something like half a cent a thousand cubic feet.

The pipe lines acquired 62 percent of all of the gas in that field. They acquired 56 percent of all of the gas in what is known as the west Panhandle zone, which is the larger portion of that field, and 60 percent of the sweet-gas reservoir in the zone. The Texoma Co. acquired 20 percent of the entire acreage, 20 percent of the sweetgas acreage, and about 15% percent of all of the gas in the entire field.

These pipe lines drilled on their leases about 263 wells down to the 1st of August 1935, when the Texas House bill 266 became effective.

Others had acquired or drilled 180 wells in the sweet-gas area and 211 wells in the sour-gas area, making a total of about 684 wells.

The total acreage held by these wells drilled by the pipe linesthat is, the total aggregate of the leases on which these pipe-line wells were located-was 386,909 acres, and the others, respectively, had 30,000 acres on which the 180 sweet-gas wells were located and 33,750 acres on which the 211 sour-gas wells were located.

Thus it appears that the average size of the tract upon which the pipe lines drilled a well was about 1,765 acres, whereas the average size of the tract on which those other than pipe lines drilled a well was about 163 acres.

The average production down to August 1, when this bill became effective, of the pipe-line company leases already developed was about 1,157,000 cubic feet per acre. The average of others than the pipe lines

Mr. MERRITT. Per acre per day, or what?

Mr. MORGAN. Per acre during the entire life of the field.

They had produced down to the time this bill became effective only 1,157,000 cubic feet of gas per acre from the leases which they had developed.

Well, at this point I may add that does not take into account some three or four hundred thousand acres of undeveloped acres which they owned in the proven field.

The owners of other wells which had been producing in competition with the pipe lines had produced 14,300,000 cubic feet per acre, or more than 12 times as much per acre from their developed leases as had the pipe lines at the time this bill was enacted.

Now, that includes all wells not owned by pipe lines. There are some 50 of those wells that had never been connected and had never been produced at the time the act became effective, but those are included in arriving at the average production per acre by others than pipe lines, which was 14,300,000 cubic feet per acre, as against 1,157,000 cubic feet by the pipe lines, or more than 12 times as much per acre.

The average content of an acre in the Panhandle field originally was believed to be, and is believed to have been, but 15,000,000 cubic feet per acre. Some of these wells not owned by pipe lines, and which were produced for the purpose of obtaining gas for stripping plants, produced enormous quantities of gas-in excess of the quantity that was originally contained in the lease. For instance, I have in mind an extreme case, a lease known as the Polo lease, which produced 1,388,700,000 cubic feet per acre prior to the enactment of this bill. That is 92 times as much gas as the average content per acre throughout the field.

When this bill was passed-and that is just an illustration. There were numerous other cases, and, as I said awhile ago, the average was 14,000,000, which was substantially the quantity originally contained in the ground.

Now, when this bill was enacted the Texas Railroad Commission

Mr. COLE. Judge, might I interrupt you?

Mr. MORGAN. Yes, sir.

Mr. COLE. You are making a very interesting statement. We have a copy of the Texas law of 1935, I believe, in the Federal Trade

Reports. Of course, this bill before us does not deal with the conservation or waste of this resource, except its reference to compacts.

The question I asked I do not think calls for any extended statement as to the field or the difficulty you had. We are dealing with the interstate characteristics in this bill; but, of course, and in the operations of such a bill, we get naturally into the Panhandle field and face these difficulties. The question I have in mind calls for an explanation as to what the courts did with reference to the statute, and you are entirely familiar with that.

Mr. MORGAN. That is what I was about to come to. I merely make this preliminary statement in order that you might follow better the discussion and consideration of that case, because that is the problem that the court had to deal with.

The statute was enacted-and you have read it, of course-which gave the Railroad Commission of Texas the power, or sought to give the railroad commission the power, to fix the rate of production from each gas well in the field on a reasonable basis. The railroad commission, acting upon that authority, or supposed authority, passed an order down there that so curtailed the production from the wells of the pipe lines that they were far short of their market requirements, and they had no way of supplying their customers with gas without going out and dividing their markets and their pipe-line facilities with those who had produced many times as much gas from their leases as had the pipe lines.

The pipe lines naturally were not in accord with that sort of proration order. They did not feel that they ought to be called upon to divide their markets, which they had developed at great cost over the period of years, and to divide their pipe-line facilities which they had developed, and the equipment which they had developed, for the transportation of their own gas to the markets, with those who had been guilty of the extravagant production of gas in that field as had those who were clamoring for a division of these markets and pipe-line facilities. The Texoma Natural Gas Co., and two other pipe lines filed suit in the Federal court attacking those orders of the railroad commission and attacking the statute as construed by the commission on the grounds that if it were subject to the construction the commission gave it, that it was unconstitutional in that it would operate to take their property and give it to those who had no interest in it, without compensation to the pipe lines. It was that case that was decided a couple of weeks ago and which Mr. Cole had in mind.

The courts held that the railroad commission was without authority to curtail or prorate production except as a means of preventing waste, and for the fourth time held that no waste was resulting from the operations of the pipe lines; that they had produced their gas in a prudent manner; that they had produced less by far than their proportion of the gas that had been produced from the field; and that they could not be required by the Texas Railroad Commission to divide these markets and these pipe-line facilities with those who had already taken more than their share and utilized it for wasteful purposes and who had contributed nothing to the building of the pipe lines or development of the markets.

I am using the language, in substance, of the court which decided the case.

Now, there may be an impression that just one court had been striking down all of these orders through the years down there. Mr. COLE. What do you mean by taking more than their share? Mr. MORGAN. They have taken, of the gas that has been produced, they have taken 14,700,000 cubic feet per acre from their leases, whereas the pipe lines have taken only 1,197,000 cubic feet per acre.

Mr. COLE. What they did, was done with the approval of the railroad commission?

Mr. MORGAN. They did with approval of the railroad commission; yes. The railroad commission, as a matter of fact, permits authorizing them to do that; but I am talking about the situation based upon the ownership of the field-the pipe lines owned 62 percent and had produced only 5 or 6 percent of the gas that had been actually produced from the field.

I have a graph here which will shorten my statement on that point and demonstrate the actual situation better than I could make it in a half hour's talk. I hold here a graph captioned "West Panhandle Field", average daily withdrawals of gas, January 1 to July 30, inclusive.

That was for the part of the year that expired immediately before the act went into effect.

The gas pipe lines owned that proportion of the field represented from the bottom [exhibiting and indicating on plat], to this point here [indicating] making 56 percent of the gas in the West Pan

handle field.

The pipe lines during that period took up to this point [indicating], whereas other producers began here and took up to this point, although they owned a very much less proportion of the gas than did the pipe lines.

In other words, the pipe lines were having their gas drained from under their leases by other operators and when the State said to these other operators, "You cannot waste this gas as you have been doing", then the railroad commission undertook to say to the pipe lines, because these men who have been wasting their gas and yours, and having threatened the field with destruction, you must give these men who have produced at this extravagant rate a part of your market and a part of your pipe-line facilities.

That is the thing that was involved in that lawsuit.

Mr. COLE. Without taking any side on the issues, the pipe lines were taking other than their own gas, were they not? Mr. MORGAN. No, sir; the pipe lines were not.

Mr. COLE. Why not?

Mr. MORGAN. For the simple reason that they owned 62 percent o fthe entire reservoir and had taken less than 5 percent of the gas produced.

Mr. COLE. Whether they had taken one one-millionth of 1 percent, they took gas from a common pool and the man who did not have a pipe line was having his gas taken, was he not?

Mr. MORGAN. If he had not been taking it himself, that is true: but when two groups own an interest, one 62 percent, and the other combined group 38 percent, and the group who owns 38 percent is taking 12 times as much from day to day as the man who owns 62

percent, the man producing the lesser quantity with the greater ownership could not very well be taking the gas of the other fellow in the final wash-out. That is the point that I am trying to make. Mr. COLE. Let me see if we understand each other: As I recall, when pipe lines were laid first to give an outlet for the natural gas in the Panhandle field they were owned by companies which did not own the entire field. You will admit, of course, that when they took the gas from the field they were, of course, taking gas from the man whose property they did not own in that field. That is right, to some extent?

Mr. MORGAN. There may be instances where the pipe line would get some gas from a man's lease over here which happened to be close to its well, but the condition was such over the entire field, gentlemen of the committee, that the pipe lines were getting very much less than their proporion of the gas that was being produced from day to day.

Mr. COLE. You still do not answer my question. I cannot reconcile your statement. The man over here who has no pipe-line outlet, and was operating a casinghead gas plant, you complain of that, because he was taking gas of this company which has a pipe line and yet, he has no outlet for his property, and a company with a pipe line is taking gas from over here, and of course, when that company takes gas here, taps in the pipe line from this part of the field [indicating] it owns, naturally it is taking some gas-I do not care how small a percentage it might be-from the entire field, and therefore from the man who still owns a part of that field, without pipe-line facilities. That certainly is true, is it not?

Mr. MORGAN. Well, Iwould not make that admission in the light of the things that actually have gone on down there, Mr. Cole. That would be true if the pipe lines were the only people producing, but the fact is that there have always been others producing. There are those who have been running there gas to carbon black plants, and those who have been producing their gas through oil wells, and throughout the entire history of the field, the pipe lines have been taking a very much smaller proportion of the production each day than they owned in the reservoir.

Now, there were other people whose leases were being drained, because their leases were not developed, or because in a few instances their wells were not connected; but could that drainage be charged to the pipe lines who were getting much less than proportion of the production, or should it be charged to those who were taking much more than their share of the production? That is the practical question that was presented from the operating standpoint.

Mr. COLE. Was it not because of the very thing I pointed out, which you did not concede, that the Railroad Commission permitted, or issued permits to the people who do not have pipe line outlets from the part of the field they own, in order to protect the owners from this waste? Was not that the basis for the permits?

Mr. MORGAN. That was assigned as the reason; yes, sir; that is

correct.

Mr. COLE. Then, in the act of 1935, the State of Texas was trying to solve that problem by ratable taking of production, were they not? Distribution of markets throughout the entire field. Is that what the 1935 statute is?