FEBRUARY 13, 1922, 1 COMP. GEN. 422

FEBRUARY 13, 1922, 1 COMP. GEN. 422

ROYALTIES FROM OIL AND GAS LANDS WITHIN NAVAL PETROLEUM RESERVES THE STATE OF CALIFORNIA IS NOT ENTITLED TO ANY PORTION OF MONEYS DERIVED FROM THE PRODUCTS OF LANDS IN NAVAL PETROLEUM RESERVES, UNDER PROVISIONS OF THE GENERAL LEASING ACT OF FEBRUARY 25, 1920, 41 STAT., 437, THE LAST PROVISO OF SECTION 35 OF THAT STATUTE REQUIRING THAT ALL SUCH MONEYS SHALL BE DEPOSITED IN THE TREASURY AS "MISCELLANEOUS RECEIPTS.'

DECISION BY COMPTROLLER GENERAL MCCARL, FEBRUARY 13, 1922:

THE CHIEF OF THE INTERIOR DEPARTMENT DIVISION, THIS OFFICE, REPORTED JANUARY 19, 1922, THE MATTER OF THE CLAIM PRESENTED BY THE STATE OF CALIFORNIA FOR $686,447.01, ALLEGED TO BE DUE THE STATE AS FOLLOWS: 20 PERCENT OF $2,759,443.41 ON ACCOUNT OF PAST PRODUCTION AND 37 1/2 PERCENT OF $359,067.66 ON ACCOUNT OF FUTURE PRODUCTION, ALL WITHIN NAVAL PETROLEUM RESERVES. THE ITEMS CORRECTLY COMPUTED TOTAL $686,539.06.

THE QUESTION ARISES IN CONNECTION WITH THE PROVISIONS OF THE ACT OF FEBRUARY 25, 1920, 41 TAT., 437, BEING "AN ACT TO PROMOTE THE MINING OF COAL, PHOSPHATE, OIL, OIL SHALE, GAS AND SODIUM ON THE PUBLIC DOMAIN.'

IT WAS REPRESENTED ON BEHALF OF THE STATE THAT THERE WAS PAID INTO THE TREASURY UNDER THE TERMS OF SAID ACT UP TO THE EXPIRATION OF THE LAST FISCAL YEAR, SOLELY FROM LANDS WITHIN THE STATE OF CALIFORNIA, THE TOTAL SUM OF $6,437,107.41, OF WHICH $5,430,370.88 REPRESENTS PAST PRODUCTION AND $1,006,736.53 REPRESENTS FUTURE PRODUCTION. A STATEMENT OF RECEIPTS MADE BY THE SECRETARY OF THE INTERIOR, WHO IS CHARGED WITH THE DUTY OF CARRYING OUT THE PROVISIONS OF SAID ACT, SHOWS THAT OF THE $5,430,370.88 FOR PAST PRODUCTION DURING THE FISCAL YEAR ENDED JUNE 30, 1921, $2,670,927.47 WAS RECEIVED FROM LANDS OUTSIDE OF NAVAL RESERVES AND $2,759,443.41 WAS FROM LANDS WITHIN NAVAL RESERVES, AND THAT THE $1,006,736.53 FOR FUTURE PRODUCTION WAS MADE UP OF $647,668.87 FROM LANDS OUTSIDE OF NAVAL RESERVES AND $359,067.66 FROM LANDS WITHIN NAVAL RESERVES. BY SETTLEMENT NO. 68985 OF AUGUST 24, 1921, 20 PERCENTUM OF $2,670,927.47 AND 37 1/2 PERCENTUM OF $647,668.87, AGGREGATING $777,061.32, WAS PAID TO THE STATE OF CALIFORNIA AS THE AMOUNT DUE THE STATE UNDER THE PROVISIONS OF THE ACT FROM RECEIPTS FROM LANDS OUTSIDE OF NAVAL RESERVES.

THE SECRETARY OF THE INTERIOR, IN REPLY TO THE REQUEST OF THIS OFFICE FOR AN ADMINISTRATIVE REPORT UPON THE MATTER, STATED AS FOLLOWS:

IN ORDER THAT YOU MAY HAVE FOR REFERENCE THE HISTORY OF THE SUBJECT AND A REFERENCE TO THE APPLICABLE STATUTES, I HAVE TO ADVISE AS FOLLOWS:

SEPTEMBER 17, 1909, HON. R. A. BALLINGER, THEN SECRETARY OF THE INTERIOR, WROTE THE PRESIDENT OF THE UNITED STATES AS FOLLOWS:

"I HAVE THE HONOR TO BRING TO YOUR ATTENTION THE SUBJECT OF THE CONSERVATION OF THE PETROLEUM RESOURCES OF THE PUBLIC DOMAIN, WITH SPECIAL REFERENCE TO THE PRESENT AND FUTURE REQUIREMENTS OF THE AMERICAN NAVY. THE SIX LARGEST BATTLESHIPS IN COMMISSION OR UNDER CONSTRUCTION ARE EQUIPPED FOR THE USE OF EITHER OIL OR COAL AND THE FOURTEEN LATEST DESTROYERS USE OIL EXCLUSIVELY. * * * THE NAVY HAS A FURTHER INTEREST IN THE CONSERVATION OF THE PETROLEUM SUPPLY BY REASON OF THE ABSOLUTELY NECESSARY USE OF PETROLEUM PRODUCTS FOR LUBRICATION. * * * THE RECOMMENDATION WAS MADE BY THE DIRECTOR OF THE GEOLOGICAL SURVEY IN FEBRUARY, 1908, TO MY PREDECESSOR THAT THE FILING OF CLAIMS TO OIL LAND IN THE STATE OF CALIFORNIA BE SUSPENDED IN ORDER THAT THE GOVERNMENT MAY CONTINUE THE OWNERSHIP OF A SUFFICIENT SUPPLY OF PETROLEUM ON THE PACIFIC COAST WHERE OTHER FUEL IS EXPENSIVE. * * * THE TIME APPEARS OPPORTUNE FOR LEGISLATIVE ACTION THAT WILL ASSURE THE CONSERVATION OF AN ADEQUATE SUPPLY OF PETROLEUM FOR THE GOVERNMENT'S OWN NEEDS. THIS LEGISLATION SHOULD GIVE AUTHORITY TO FIX THE TERMS OF DISPOSITION OF PUBLIC OIL LANDS, SO AS TO PROVIDE FOR THE FUTURE DEMANDS OF THE NAVY, AND SHOULD ALSO AUTHORIZE THE PERMANENT RESERVATION OF SUCH AREAS AS THE EXECUTIVE, AFTER FULL INVESTIGATION, MAY FIND NECESSARY FOR THIS FEDERAL PURPOSE.'

SEPTEMBER 27, 1909, LARGE AREAS OF OIL LANDS IN THE STATE OF CALIFORNIA WERE WITHDRAWN FROM ALL FORMS OF LOCATION, SETTLEMENT, OR DISPOSAL UNDER THE MINERAL OR NONMINERAL LAND LAWS. THESE WITHDRAWALS WERE RATIFIED, CONFIRMED, AND CONTINUED BY THE PRESIDENT JULY 2, 1910.

AUGUST 10, 1912, THE SECRETARY OF THE INTERIOR PREPARED AND SUBMITTED TO THE PRESIDENT RECOMMENDATION FOR THE WITHDRAWAL OF 38,069 ACRES IN THE ELK HILLS, CALIFORNIA, BELIEVED TO CONTAIN A SUPPLY OF OIL "FOR THE USE OF THE UNITED STATES NAVY.' THIS WITHDRAWAL WAS APPROVED BY THE PRESIDENT SEPTEMBER 2, 1912, AND WAS DESIGNATED AS NAVAL PETROLEUM RESERVE NO. 1. SIMILAR RECOMMENDATION WAS MADE DECEMBER 11, 1912, AS TO AN ADDITIONAL AREA IN THE SAME GENERAL LOCALITY, CONTAINING APPROXIMATELY 29,541 ACRES, IN THE BUENA VISTA HILLS, CALIFORNIA, WHICH WITHDRAWAL WAS MADE BY THE PRESIDENT AND DESIGNATED AS NAVAL PETROLEUM RESERVE NO. 2, ON DECEMBER 13, 1912. THOSE WITHDRAWALS ARE STILL IN FULL FORCE AND EFFECT.

LEGISLATION HAVING BEEN INTRODUCED INTO CONGRESS TO PROVIDE FOR LEASING ON A ROYALTY BASIS OF THE OIL AND GAS DEPOSITS IN THE PUBLIC LANDS OF THE UNITED STATES, AND IT HAVING BEEN BROUGHT TO THE ATTENTION OF CONGRESS THAT THERE WERE A NUMBER OF CLAIMS THERETOFORE INITIATED UNDER THE MINING LAWS WHICH WERE IN PROCESS OF ADJUSTMENT, CONGRESS PASSED AN ACT ON AUGUST 25, 1914, 38 STAT., 708, DESIGNED TO PERMIT OF THE CONTINUED OPERATION OF WELLS UPON SUCH CLAIMS PENDING ENACTMENT OF PERMANENT LEGISLATION BY CONGRESS. THE LAST SENTENCE OF SECTION 2 OF THAT ACT PROVIDED:

"ANY MONEY WHICH MAY ACCRUE TO THE UNITED STATES UNDER THE PROVISIONS OF THIS ACT FROM LANDS WITHIN THE NAVAL PETROLEUM RESERVES SHALL BE SET ASIDE FOR THE NEEDS OF THE NAVY AND DEPOSITED IN THE TREASURY TO THE CREDIT OF A FUND TO BE KNOWN AS THE NAVY PETROLEUM FUND, WHICH FUND SHALL BE APPLIED TO THE NEEDS OF THE NAVY AS CONGRESS MAY FROM TIME TO TIME DIRECT BY APPROPRIATION OR OTHERWISE.'

FEBRUARY 25, 1920, 41 STAT., 437, CONGRESS PASSED WHAT IS KNOWN AS THE GENERAL LEASING LAW. SECTION 18 OF THAT ACT, WHICH PROVIDED RELIEF FORCERTAIN EQUITABLE CLAIMS UNDER THE MINING LAWS, MADE SPECIAL PROVISION IN THE SECOND, THIRD, AND FOURTH PROVISOS OF THE SECTION FOR CLAIMS ,WITHIN ANY NAVAL PETROLEUM RESERVE.'

SECTION 35 OF THE ACT PROVIDED FOR A DISTRIBUTION OF THE ROYALTIES AND RENTALS RECEIVED UNDER THE ACT, STIPULATING THAT A PORTION OF SAME SHOULD BE PAID INTO THE TREASURY OF THE UNITED STATES, A PORTION PAID TO THE STATE IN WHICH THE OIL OR GAS IS PRODUCED, AND THE REMAINDER BE PLACED IN AND USED AS A PART OF THE RECLAMATION FUND. A PROVISO TO SAID SECTION IS TO THE EFFECT THAT---

"ALL MONEYS WHICH MAY ACCRUE TO THE UNITED STATES UNDER THE PROVISIONS OF THIS ACT FROM LANDS WITHIN THE NAVAL PETROLEUM RESERVES SHALL BE DEPOSITED IN THE TREASURY AS "MISCELLANEOUS CEIPTS.'"

SECTION 36 OF THE ACT PROVIDED THAT ANY ROYALTY ACCRUING TO THE UNITED STATES UNDER AN OIL OR GAS LEASE SHOULD, ON DEMAND,"BE PAID IN OIL OR GAS.'

ASSUMING THAT IT WAS ENTITLED TO THE PROCEEDS ACCRUING TO THE UNITED STATES FROM DEVELOPMENT WITHIN THE NAVAL PETROLEUM RESERVES, THE NAVY DEPARTMENT REQUESTED THIS DEPARTMENT TO REQUIRE ALL LESSORS OF OIL LANDS WITHIN THE RESERVES TO ACCOUNT FOR AND PAY THE PORTION DUE THE UNITED STATES FOR FUTURE PRODUCTION THEREFROM IN KIND, VIZ, IN OIL. THIS PROCEDURE IS BEING FOLLOWED, THE OIL ACCRUING TO THE GOVERNMENT BEING TAKEN IN KIND AND HELD AVAILABLE FOR THE USE AND DISPOSITION OF THE NAVY. IN THIS CONNECTION I DIRECT YOUR ATTENTION TO A PROVISION IN THE NAVAL APPROPRIATION ACT OF JUNE 4, 1920, 41 STAT., 813, DEALING SPECIFICALLY WITH NAVAL PETROLEUM RESERVES, UNDER WHICH CONGRESS AUTHORIZED THE SECRETARY OF THE NAVY TO TAKE POSSESSION OF LANDS THEREIN NOT EMBRACED IN THE CLAIMS OF OTHERS, AND---

"TO CONSERVE, DEVELOP, USE AND OPERATE THE SAME, IN HIS DISCRETION, DIRECTLY OR BY CONTRACT, LEASE, OR OTHERWISE, AND TO USE, STORE, EXCHANGE, OR SELL THE OIL AND GAS PRODUCTS THEREOF, AND THOSE FROM ALL ROYALTY OIL FROM LANDS IN THE NAVAL RESERVES FOR THE BENEFIT OF THE UNITED ATES.'

THE LATTER PROVISION OF LAW HAS BEEN CONSTRUED BY THIS DEPARTMENT AS PLACING UNDER THE CONTROL AND FOR THE BENEFIT OF THE UNITED STATES NAVY NOT ONLY ALL LANDS WITHIN SAID NAVAL PETROLEUM RESERVES FREE FROM CLAIMS OF OTHERS, BUT DEVOTING AND SETTING ASIDE FOR THE SAME PURPOSE "ALL ROYALTY OIL" FROM ALL LANDS WITHIN THE LIMITS OF THE NAVAL PETROLEUM RESERVES.

ACCORDINGLY, RECEIPTS FROM THE OIL AND GAS IN SAID RESERVES, AND THE PRODUCT OF THE LANDS WHEN THE ROYALTY IS TAKEN IN KIND, HAVE NOT BEEN REGARDED BY THIS DEPARTMENT AS BEING SUBJECT TO THE DIVISION PROVIDED FOR IN THE FIRST PART OF SECTION 35 OF THE ACT OF FEBRUARY 25, 1920, BUT THAT WHERE ROYALTIES WERE TAKEN IN CASH, AS THEY HAD TO BE FOR PAST PRODUCTION, THE ENTIRE CASH ROYALTY RECEIPTS SHOULD BE PLACED IN THE TREASURY UNDER THE TERMS OF THE PROVISO TO SAID SECTION 35, AND THAT WHERE THE NAVY HAS ELECTED, AS IT HAS, TO TAKE ALL FUTURE PRODUCTION IN KIND FOR THE USE OF THE NAVY, THE STATE HAS NO CLAIM THERETO.

IT IS CLEAR THAT THE CLAIM OF THE STATE OF CALIFORNIA AS MADE CONFLICTS WITH THE REQUIREMENT OF SECTION 35 OF THE ACT OF FEBRUARY 25, 1920, THAT ALL MONEYS WHICH MAY ACCRUE TO THE UNITED STATES UNDER THE PROVISIONS OF THE ACT FROM LANDS WITHIN THE NAVAL PETROLEUM RESERVES SHALL BE DEPOSITED IN THE TREASURY AS "MISCELLANEOUS RECEIPTS; " AND IT WOULD MAKE THE PROVISO TO SAID SECTION UNNECESSARY AND MEANINGLESS. THE CLAIM ALSO CONFLICTS WITH THE ACT OF JUNE 4, 1920, TO USE, STORE, EXCHANGE, OR SELL THE OIL AND GAS PRODUCTS THEREOF, AND THOSE FROM ALL ROYALTY OIL FROM LANDS IN THE NAVAL RESERVES. THE INTENDMENT OF THE PROVISO OF SECTION 35, IN THE LIGHT OF PREVIOUS AND SUBSEQUENT LEGISLATIVE AND EXECUTIVE ACTION, IS CLEAR. ALL MONEYS ACCRUING TO THE UNITED STATES FROM LANDS WITHIN THE NAVAL PETROLEUM RESERVES COMPREHEND THE TOTAL OF SUCH MONEYS HOWEVER IT SHALL ACCRUE WHETHER FROM OPERATIONS OF THE NAVY, DIRECTLY OR BY CONTRACT, LEASE, OR OTHERWISE, OR FROM ROYALTY EXACTIONS, AND THE SECTION IS THUS CONSTRUED.

THE CLAIM OF THE STATE OF CALIFORNIA MUST BE DISALLOWED AND THE INTERIOR DEPARTMENT DIVISION, THIS OFFICE, WILL TAKE ACTION ACCORDINGLY.