Mr. MORGAN. That is what the 1935 statute purports to do, according to the construction placed upon it by the Commission. The court says in passing on it that it was not the purpose of the legis lature to require the pipe lines to curtail their markets below their own requirements except for the purpose of preventing waste.

Mr. COLE. And your idea is that the statute of 1935 which was involved in this case is perfectly good insofar as the ability of the Commission to stop the waste of this gas by carbon-black plants, and casing-head gas plants, or whatever waste has been going on. Mr. MORGAN. The statute does not purport to stop the use of gas for carbon-black plants. That is limited to sour gas.

Mr. COLE. No; but waste which results after the carbon black and gasoline is taken from it. That is what I have reference to. I understand you feel that this statute was to prevent that, and in arguing this case, you contended that it did not apply to your company, but the statute is still good as to these men who do not have pipe-line outlets for the part of the field they own, but are committing waste in the operation of carbon-black plants and gasoline stripper plants.

Mr. MORGAN. That is correct.

Mr. COLE. That is correct?

Mr. MORGAN. The effect of these decisions is to uphold the waste provisions.

Mr. COLE. Yes.

Mr. MORGAN. Those provisions preventing waste.

Mr. COLE. Yes.

Mr. MORGAN. But, the court's decision strikes down the orders which the Railroad Commission say are ratable taking orders, which the court says were not fair orders, and were not of the character that the term "ratable taking" ought to apply to.

Now, I have here in answer to your question, if the committee please, a little graph that I think you will be interested in.

You will note from that graph that the orders of the Commission so affected the allowable as that the man who had a small tract, had a 10-acre tract, had an advantage over the man who drilled his well on a large tract. In other words, if you will look down through that I will not stop to discuss it without-it will be seen that the man who has a well on a 640-acre tract will be furnishing gas to the man who has a well alongside of that tract on 10 acres, because the orders of the Commission which the court struck down, allowed the man on the 10-acre tract to produce at the rate of 2,900 percent as much per acre than the man who had a well on a 640-acre tract, and the court said that was not ratable taking and that character of order could not stand up.

Mr. PEYSER. What disposition is made of the gas that is not transported to the pipe lines; what becomes of that gas?

Mr. MORGAN. That gas heretofore has been produced in enormous quantities, stripped of its natural gasoline, and about 97 percent of its heat value simply popped off into the atmosphere without even being burned for carbon black. It just goes off wasted into the air. They get about three-tenths of a gallon of gasoline per thousand cubic feet of gas.

Mr. PEYSER. And what is extracted from it?

Mr. MORGAN. Natural gasoline.

Mr. PEYSER. Gasoline?

Mr. MORGAN. Which is prepared or run in with straight gasoline and made into a motor fuel.

Now, I would like to offer in evidence the opinions of the courtsof the court in these two cases-in which attacks have been made upon Texas house bill 266. They discuss both the facts and the law.

Mr. COLE. That is the Consolidated Gas Utilities Corporation and the Texoma Natural Gas Co. case?

Mr. MORGAN. That is one of them. The other one is the carbon black case, the Henderson Co., and the Portland Gasoline Co. case. Mr. COLE. Of course, when you refer to house bill 266 you mean the bill passed by the Texas State Legislature?

Mr. MORGAN. The Texas bill-house bill 266. It is so described in those opinions.

I do not know what further information the committee would like to have.

Mr. COLE. Those decisions may go into the record. (The decisions referred to are as follows:)

In the District Court of the United States for the Western District of Texas. Consolidated Gas Utilities Corporation, Complainants, v. Ernest O. Thompson et al., Defendants, equity no. 539; Texoma Natural Gas Co., Complainant, v. Ernest O. Thompson et al., Defendants, equity no. 550

Before Hutcheson, circuit judge, and McMillan and Kennerly, district judges. Hutcheson, circuit judge: On amended pleadings bringing down to date1 the proration orders of the Commission plaintiffs complain of, these causes went on January 6, 1936, to final hearing on their merits.

Though complainants' attacks were leveled against both the statute, house bill no. 266 (acts of Texas, 1935, ch. 120, Vernon's Ann. Civ. Stats., Texas, art. 6008) and the orders of the commission, the primary attack was, it was bound to be, on the orders. For none of the matters of which complaint is made are the result of the self-execution of any of the provisions of the statute. They arise on, they exist only because of the orders. The act is under attack only if and to the extent that it supports the complained-of orders. Both act and orders are greatly comprehensive. The act declares the policy of the State in the conservation of natural gas and the prevention of waste in its development and production and provides broadly for its administration by the commission. It classifies gas as sweet and sour, fixes the uses to which each kind of gas may be put, authorizes the zoning of fields for the purpose of their regulation and administration, directs the commission in the discharge of duties imposed and powers conferred, and provides penalties. The specific sections of the statute involved here are sections 10 to 20, Vernon's Annotated Civil Statutes of Texas, article 6008.2

The orders under attack, particularly that of December 10, 1935, are as to the area in question the Panhandle District of Texas, like the statute, conceived and couched in comprehensive terms and purport in accordance with the statute to bring the whole field under a comprehensive plan of regulation and control. Upon a full recitation of the history of the field-physical, political, and legal— which we adopt as substantially correct, in general this plan created two zones, the eastern and the western, fixed the drainage area of each well in each of

1Teras Panhandle Gas Co. v. Thompson (12 Fed. Supp. 462).

2 Sec. 10 directs the Commission to prorate and regulate the production of gas from each common reservoir, for the protection of private and public interests, (a) in the prevention of "waste as defined herein", (b) “in the adjustment of correlative rights and opportunities of each owner of gas in a common reservoir to produce and use or sell such gas as permitted in this article." The remaining sections direct when and how the Commission shall discharge the duties imposed and exercise the authority conferred. These sections provide for the hearing and determination of waste and market demand and for zoning fields. They designate the limits within which restrictions may be imposed and generally lay out and prescribe the Commission's course in discharging its

agency.

these zones, and in the western Panhandle field, where alone sour gas was found to exist, established a line of demarkation between sweet- and sour-gas

areas.

"SPECIAL ORDER FIXING ALLOWABLE PRODUCTION OF SWEET AND SOUR NATURAL GAS IN THE PANHANDLE DISTRICT OF TEXAS

"The Panhandle oil and gas-field structure lies along a buried mountain range known geologically as the Amarillo Arch, that extends along the length of the field, continuing in a southeasterly course into the southwesterly portion of Oklahoma, where it comes to the surface as the Wichita Mountains, at an elevation of approximately 1,000 feet above sea level. The field is a belt lying in a southeasterly northwesterly direction and extends from eastern Wheeler County to northern Moore County, Tex. It is approximately 124 miles in length with an average width of approximately 20 miles, containing 1,504,386 acres; there being 1,066,662 acres of sweet gas, and 437,724 acres of sour-gas territory. The field is located in the counties of Hartley, Moore, Hutchinson, Potter, Carson, Gray, and Wheeler. The oil-producing area covers a belt about 90 miles in length lying on the northeast flank of the structure. "The oil and gas so far encountered in the Panhandle field has been found, with minor exceptions, in four separate strata; namely the dolomite, and arkosic-dolomite, the gray limestone, and the granite wash. These four formations overlie one another, and though they are normally separated one from another by impervious strata, they are interconnected as is shown by the fact that the virgin pressure of the oil and gas from all of them was 430 pounds per square inch at sea level, regardless of the location in the field.

"Gas was first discovered in northern Potter County, Tex., in December 1918, and was encountered at a depth of 2,605 feet. The gas production for several years was developed only incidentally in the search for oil. The first important oil was discovered in 1925, and the major oil pools were developed in 1926 and 1927. The development of the gas field became prominent about 1926 and continued until 1929, when it was temporarily halted by the depression. Since 1933 the gas field has been developed at a very rapid rate.

"The oil wells in the oil pools in the field were, as a general rule, drilled through one or more gas-containing strata before entering the oil-containing stratum, and in many instances the wells were so completed as to cause production of gas from the gas strata along with the oil and gas from the oil stratum, with the result that tremendous quantities of gas have been produced with the oil, large portions of it coming from gas-producing strata above the oil-producing strata. This gas was in large part blown into the air, and it has been estimated that in excess of 2 trillion cubic feet of gas produced in this manner has been wasted into the air.

"Coincident with the development of the Borger pool, casing-head gasoline plants were erected therein in which considerable portions of the gas produced therein were processed for the extraction of the gasoline content thereof and there being no market for the stripped gas, called "residue gas", resulting from the operations of said plants, the bulk of such residue gas was wasted into the air. In varying degrees the case is true of the other oil pools as they were developed and operated.

"The Panhandle field is so far removed from centers of population and industrial activity that little value was at first placed upon the enormous quantities of gas therein found but, due to the development of the casing-head gasoline plants and the resultant abundant supply of cheap residue gas that was being wasted into the air, the carbon-black industry was attracted to the area, and in September 1926 the first carbon-black plant was completed. It was located in the Borger pool and proceeded to burn considerable quantities of such residue gas for the manufacture of carbon black. Thirty additional carbon-black plants have since been built and placed in operation in the field. The combined throughout capacity of said plants is approximately 570,000,000 cubic feet of gas daily. In excess of 70 percent of the carbon-black manufactured in the United States is being manufactured in the Panhandle field.

"There are at present 1,090 natural-gas wells in this field. These wells have a total daily open-flow potential of 17,231,183 M cubic feet. Of this total, 225 wells produce sour gas, and these wells have a total open-flow potential of 2,099,985 M cubic feet daily. In the oil-producing belt there are 2,527 oil wells producing from 27 different pools.

"Development throughout the Panhandle field has long since proved it to be the largest known reserve of natural gas in the United States. The demand for gas for light and fuel uses was local and was relatively small prior to 1926.

"The construction of pipe lines began in January 1926, when the Northern Texas Utilities Co. started transporting gas to towns in northern Texas, the principal one of which was Wichita Falls. In July of 1927 the Lone Star Gas Co. started running gas in northern Texas, principally into Fort Worth and Dallas. In the early part of 1928 the South Plains Pipe Line Co. and the Cities Service Gas Pipe Line Co. started transporting gas from this field, the former into towns south of Amarillo in west Texas and the latter to Kansas City, Mo. In June of that year the Canadian River Gas Co. began transporting gas into Colorado, principally into the cities of Denver and Pueblo. In November of that year Texas Panhandle Gas Co. began using its line to transport gas into Oklahoma and to Wichita, Kans. There was relatively little development by pipe lines from this time until June of 1931, when the Panhandle Eastern Pipe Line Co. began transporting gas through its line as far as Indianapolis, Ind.

"In October of 1931 the Texoma Natural Gas Co. began its operations. The gas transported by this line was carried to markets in Nebraska, Iowa, and Illinois, the principal market being Chicago and its vicinity. In May of 1932 the Northern Natural Gas Co. began its operations in which it transported gas into Nebraska and Iowa, principally into the towns of Des Moines, Iowa, and Minneapolis and St. Paul, Minn.

"The total length of these nine major pipe lines approximates 4,425 miles, and the total capacity thereof is approximately 1,000,000,000 cubic feet of gas per day. A daily average of approximately 300,000,000 cubic feet of gas was transported from the Panhandle field through these lines during the year 1933, and a daily average of approximately 400,000,000 cubic feet of gas was being transported through said lines during the year 1934, and the daily average amount being transported therethrough at the present time is approximately 450,000,000 cubic feet.

"These major pipe-line companies acquired and now hold under lease approximately 850,000 acres of land, which is about 61 percent of the total gas-producing area in the Panhandle field, each such company separately owning and operating its own leases. Of the total area proven productive of sweet gas, these major companies own approximately 80 percent. They have not and are not taking or transporting sour gas through their lines. Unless such gas is treated, it is not suitable for light, fuel, and domestic uses. The demand for sour gas for light and fuel uses is restricted to isolated lease purposes. "Six or seven of the major pipe-line companies have produced and transported to the markets gas produced from only their own gas leases (or the leases of their respective affiliated or subsidiary companies), and have not purchased gas from other lease owners in the field. Prior to and since the passage of said act many of the unconnected lease owners have repeatedly endeavored to induce those companies to purchase gas from their lands, but without avail. Some of these companies have been and are willing to purchase gas ratably in the field, if all the others would do so, and two companies have made 30 new connections and are taking ratably from these connections.

"In addition to the major pipe lines there are 10 additional pipe lines of lesser capacities serving local towns and cities in the immediate vicinity of the field, with a throughout capacity of approximately only 65,000,000 cubic feet of gas per day. For the most part, these small pipe-line companies own their own leases and supply their requirements therefrom, although some of them purchase some of their requirements from other lease owners. Nevertheless, a very large number of separately owned leases have remained without connections with market outlets. In fact, there are more than 90 gas wells that have never had a connection. The pipe-line companies, large and small, have taken up all the markets economically and practically available for sweet gas from the Panhandle field, and their control thereof constitutes a virtual, if not an actual, monopoly of said markets.

"The policy of most of the pipe-line companies operating in this field to take gas from only those wells which they owned, to the exclusion of the other operators in the field has resulted in a protracted controversy between them and those operators in this field without a market. This controversy resulted in the passage by the Legislature of the State of Texas of a number of bills, all of which had as their purpose the protection of the right of those operators to sell their gas. In 1931 the forty-second legislature passed what is known as the "Common Purchaser Act." This law required that pipe-line companies

taking gas in the State should be considered as a common purchaser and should take gas ratably under conditions which should be prescribed by the Railroad Commission of Texas. As a result of this act the railroad commission issued orders which had the effect of requiring the distribution of the markets of the pipe-line companies among the various producers in the field in proportion to the daily open-flow potentials of the wells owned by those producers. This law was attacked by several of the gas pipe-line companies in the United States District Court for the Western District of Texas, and the statute and the orders of the railroad commission issued thereunder were stricken down.

"As a result of the failure of the Common Purchaser Act, the second called session of the forty-second legislature passed an act which provided that the railroad commission should determine the market demand for any particular field, and should allocate the production in this field among the various producers to meet this market demand. The orders entered by the railroad commission as a result of this act were again attacked by the same pipe-line companies in the United States District Court for the Western District of Texas and were stricken down.

"As a result of the failure of these legislative attempts to obtain ratable production, there was passed by the first called session of the forty-third legislature a bill known as the "stripping law" or the sour-gas bill. This bill, in effect, gave to the railroad commission the power to permit the use of natural gas for any beneficial purpose. Before the passage of this bill, it had been the policy of the railroad commission to permit the use of casing-head gas only in stripping operations, but after its passage, the railroad commission began issuing permits to strip dry natural gas. As a result of the issuing of these permits, a number of gasoline plants were built and began to operate in the field.

"During the fall of 1933 and the year 1934, five gasoline-extraction plants were built and began operations. In addition, most of the gasoline plants which had been operating entirely on casing-head gas were converted into stripping plants. As a result of these developments, by the fall of 1934, in excess of 1 billion cubic feet of gas was being blown into the air daily. These operations so rapidly depleted the gas field that it soon became evident that some other solution of the problem must be obtained. Hence, in the spring of 1935, the forty-fourth legislature passed a comprehensive conservation statute known as 'House bill no. 266', the purpose of which was to prevent waste and compel ratable production."

Plaintiffs do not complain of the zoning provisions of the order. Neither do they complain of the statute or order demarking sweet from sour gas areas and dedicating gas from the wells in each area to the uses the statute provides. Their complaint is general against the provisions of the order which, fixing an allowable production from plaintiffs' wells below the amount they require and have been taking from their wells to serve their customers' needs, makes it compulsory upon them to purchase from the wells of others gas of which plaintiffs have an already ample supply. Their claim as to these provisions is that since it is undisputed that plaintiffs are and always have been producing their wells without waste of any kind, the order as to plaintiffs is not a waste order, but as all the prior orders have been, simply one designed to furnish markets to those having none. They insist that these pretended proration, but in reality reduction, orders are invalid (1) because not authorized by the statute they purport to administer, and (2) because they take plaintiffs' property without due process of law, and deny them the equal protection of the laws in violation of the fourteenth amendment to the Constitution of the United States and of sections 16, 17, and 19 of article 1 of the constitution of Texas. As to the statute, they complain of it as violative of the constitutional provisions above invoked only if it be held to support the orders. Their complaint on this score is general, it goes not merely to the particular scheme, but to any scheme of proration the Commission may devise. Their insistence is that no scheme of allocation or proration which is designed to and will curtail complainants' production, and by preventing their taking their own gas, compel them to buy from adjoining well owners can be constitutionally applied against them. They insist that the proof is clear and abundant, in fact, it is admitted, that from the beginning they have conducted their operations prudently and without waste, and have taken for their use only a small part of what they own. Especially do they insist that the orders are partial and unjust as to them, for not only have they not injured their neighbors by excessive takings in proportion to their holdings but they have themselves been