A-11916, NOVEMBER 25, 1925, 5 COMP. GEN. 377

A-11916: Nov 25, 1925

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ONE DISTRIBUTION SHALL BE MADE OF THE ENTIRE NET AMOUNT DUE EACH LESSEE SUBSEQUENT TO THE DATE THE WELLS AND LAND ARE TURNED OVER TO THE LESSEES. SHALL HAVE BEEN DEDUCTED. 1925: I HAVE YOUR LETTER OF NOVEMBER 10. BY WHICH TIME IT IS PROPOSED TO TURN THE WELLS AND LAND OVER TO THE LESSEES. THE FUNDS DERIVED FROM THE OPERATION OF OIL WELLS DURING THE RECEIVERSHIP PERIOD WERE TURNED OVER TO THE SECRETARY OF THE INTERIOR AND PLACED IN A SPECIAL DEPOSIT ACCOUNT TO WHICH HAVE BEEN ADDED THE FUNDS DERIVED FROM THE OPERATION OF OIL WELLS BY THE SECRETARY OF THE INTERIOR UNDER AUTHORITY OF THE STATUTE SUBSEQUENT TO JUNE 30. OF THE PROCEEDS OF THE OIL AND GAS THAT HAVE BEEN PRODUCED OR THAT MAY HEREAFTER BE PRODUCED BY THE RECEIVER OF SAID PROPERTY.

A-11916, NOVEMBER 25, 1925, 5 COMP. GEN. 377

RED RIVER OIL WELLS - DISTRIBUTION OF SURPLUS - INTEREST UNDER THE PROVISIONS OF THE ACT OF MARCH 4, 1923, 42 STAT. 1448, THE MONEYS EARNED AND ACCUMULATED FROM OIL WELLS IN THE RED RIVER DISTRICT DURING THE TWO PERIODS OF OPERATION BY THE GOVERNMENT, I.E., UNDER THE JURISDICTION OF THE RECEIVER APPOINTED BY THE SUPREME COURT OF THE UNITED STATES AND UNDER THE JURISDICTION OF THE SECRETARY OF THE INTERIOR, CONSTITUTE ONE FUND, AND ONE DISTRIBUTION SHALL BE MADE OF THE ENTIRE NET AMOUNT DUE EACH LESSEE SUBSEQUENT TO THE DATE THE WELLS AND LAND ARE TURNED OVER TO THE LESSEES, WHEN ALL OF THE AUTHORIZED DEBIT ITEMS SET FORTH IN THE STATUTE, INCURRED DURING BOTH PERIODS, SHALL HAVE BEEN DEDUCTED. INTEREST ACCRUED ON THE AMOUNT REPRESENTED BY THE ROYALTIES DUE THE UNITED STATES FROM OIL WELLS IN THE RED RIVER DISTRICT DURING OPERATION BY THE RECEIVER APPOINTED BY THE SUPREME COURT OF THE UNITED STATES AND TURNED OVER TO THE SECRETARY OF THE INTERIOR AT THE TERMINATION OF THE RECEIVERSHIP SHALL BE HELD AS A PART OF THE ROYALTIES.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE INTERIOR, NOVEMBER 25, 1925:

I HAVE YOUR LETTER OF NOVEMBER 10, 1925, SUBMITTING FOR CONSIDERATION AND APPROVAL YOUR PLAN, UNDER THE PROVISIONS OF THE ACT OF MARCH 4, 1923, 42 STAT. 1448, FOR THE DISTRIBUTION TO PERSONS DETERMINED TO BE ENTITLED TO LEASES OF OIL WELLS AND LANDS IN THE AREA COMPRISING THE SOUTH HALF OF THE RED RIVER, OF THE FUNDS DERIVED FROM THE OPERATION OF THE OIL WELLS DURING THE RECEIVERSHIP PERIOD CREATED BY THE SUPREME COURT OF THE UNITED STATES WHICH TERMINATED JUNE 30, 1924, AND ALSO DURING THE PERIOD SUBSEQUENT THERETO AND PRIOR TO DECEMBER 1, 1925, BY WHICH TIME IT IS PROPOSED TO TURN THE WELLS AND LAND OVER TO THE LESSEES.

PURSUANT TO THE PROVISIONS OF THE ACT OF MARCH 4, 1923, THE FUNDS DERIVED FROM THE OPERATION OF OIL WELLS DURING THE RECEIVERSHIP PERIOD WERE TURNED OVER TO THE SECRETARY OF THE INTERIOR AND PLACED IN A SPECIAL DEPOSIT ACCOUNT TO WHICH HAVE BEEN ADDED THE FUNDS DERIVED FROM THE OPERATION OF OIL WELLS BY THE SECRETARY OF THE INTERIOR UNDER AUTHORITY OF THE STATUTE SUBSEQUENT TO JUNE 30, 1924, TERMINATION OF THE RECEIVERSHIP.

SECTIONS 4 AND 5 OF THE ACT OF MARCH 4, 1923, 42 STAT. 1448-9 PROVIDE AS FOLLOWS:

SEC. 4. THAT EACH LESSEE SHALL BE REQUIRED TO PAY AS ROYALTY TO THE UNITED STATES AN AMOUNT EQUAL TO THE VALUE AT THE TIME OF PRODUCTION OF 12 1/2 PERCENTUM OF ALL OIL AND GAS PRODUCED BY HIM PRIOR TO THE ISSUANCE OF THE LEASE, EXCEPT OIL OR GAS USED ON THE PROPERTY FOR PRODUCTION PURPOSES OR UNAVOIDABLY LOST; AND SHALL BE REQUIRED TO PAY TO THE UNITED STATES A ROYALTY OF NOT LESS THAN 12 1/2 PERCENTUM OF ALL OIL AND GAS PRODUCED BY HIM AFTER THE ISSUANCE OF LEASE, EXCEPT OIL AND GAS USED ON THE PROPERTY FOR PRODUCTION PURPOSES OR UNAVOIDABLY LOST. OF THE PROCEEDS OF THE OIL AND GAS THAT HAVE BEEN PRODUCED OR THAT MAY HEREAFTER BE PRODUCED BY THE RECEIVER OF SAID PROPERTY, APPOINTED BY THE SUPREME COURT OF THE UNITED STATES, 12 1/2 PERCENTUM AS ROYALTY SHALL BE PAID TO THE UNITED STATES, AND THE RESIDUE AFTER DEDUCTING AND PAYING THE EXPENSES OF THE LITIGATION INCURRED BY THE UNITED STATES AND THE EXPENSES OF THE RECEIVERSHIP SHALL BE PAID TO THE PERSON OR CORPORATION TO WHOM MAY BE GRANTED A LEASE OF THE LAND ON WHICH SAID OIL AND GAS WERE PRODUCED: PROVIDED, THAT THE SECRETARY OF THE INTERIOR IS AUTHORIZED AND DIRECTED TO TAKE SUCH LEGAL STEPS AS MAY BE NECESSARY AND PROPER TO COLLECT FROM ANY PERSON OR PERSONS WHO SHALL NOT BE AWARDED A PERMIT OR LEASE UNDER THIS ACT AN AMOUNT EQUAL TO THE VALUE OF ALL OIL AND GAS PRODUCED BY HIM OR THEM FROM ANY OF SAID LANDS PRIOR TO THE INCLUSION OF SAID PROPERTY IN THE RECEIVERSHIP, EXCEPT OIL OR GAS USED ON THE PROPERTY FOR PRODUCTION PURPOSES OR UNAVOIDABLY LOST AND EXCEPT OTHER REASONABLE AND PROPER ALLOWANCES FOR THE EXPENSES OF PRODUCTION: PROVIDED FURTHER, THAT OF THE AMOUNT SO COLLECTED, 12 1/2 PERCENTUM SHALL BE RESERVED TO THE UNITED STATES AS ROYALTY AND THE BALANCE AFTER DEDUCTING THE EXPENSE OF COLLECTION SHALL BE PAID OVER TO THE PERSON OR PERSONS AWARDED PERMITS OR LEASES UNDER THIS ACT, AS THEIR INTERESTS MAY APPEAR.

SEC. 5. THAT EXCEPT AS OTHERWISE PROVIDED HEREIN THE APPLICABLE PROVISIONS OF THE ACT OF CONGRESS APPROVED FEBRUARY 25, 1920, ENTITLED "AN ACT TO PERMIT THE MINING OF COAL, PHOSPHATE, OIL, OIL SHALE, GAS, AND SODIUM ON THE PUBLIC DOMAIN," SHALL APPLY TO THE LEASES AND PERMITS GRANTED HEREUNDER, INCLUDING THE PROVISIONS OF SECTIONS 35 AND 36 OF SAID ACT RELATING TO THE DISPOSITION OF ROYALTIES: PROVIDED, THAT AFTER THE ADJUDICATION AND DISPOSITION OF ALL APPLICATIONS UNDER THIS ACT ANY LANDS AND DEPOSITS REMAINING UNAPPROPRIATED AND UNDISPOSED OF SHALL, AFTER DATE FIXED BY ORDER OF THE SECRETARY OF THE INTERIOR, BE DISPOSED OF IN ACCORDANCE WITH THE PROVISIONS OF SAID ACT OF FEBRUARY 25, 1920: PROVIDED FURTHER, THAT UPON THE APPROVAL OF THIS ACT THE SECRETARY OF THE INTERIOR IS AUTHORIZED TO TAKE OVER AND OPERATE EXISTING WELLS ON ANY OF SUCH LANDS PENDING THE FINAL DISPOSITION OF APPLICATIONS FOR LEASES AND PERMITS, AND TO UTILIZE AND EXPEND IN CONNECTION WITH SUCH ADMINISTRATION AND OPERATION SO MUCH AS MAY BE NECESSARY OF MONEYS HERETOFORE IMPOUNDED FROM PAST PRODUCTION OR HEREAFTER PRODUCED, AND UPON FINAL DISPOSITION OF APPLICATIONS FOR AND THE ISSUANCE OF LEASES AND PERMITS, AFTER DEDUCTING THE EXPENSES OF ADMINISTRATION AND OPERATION AND PAYMENT TO THE UNITED STATES OF THE ROYALTY HEREIN PROVIDED, TO PAY THE BALANCE REMAINING TO THE PERSON OR COMPANY ENTITLED THERETO: AND PROVIDED FURTHER, THAT OUT OF THE 10 PERCENTUM OF MONEY HEREAFTER RECEIVED FROM ROYALTIES AND RENTALS UNDER THE PROVISIONS OF THIS ACT AND PAID INTO THE TREASURY OF THE UNITED STATES AND CREDITED TO MISCELLANEOUS RECEIPTS, AS PROVIDED BY SECTION 35 OF THE SAID ACT OF FEBRUARY 25, 1920, THE SECRETARY OF THE INTERIOR IS AUTHORIZED TO USE AND EXPEND SUCH PORTION AS MAY BE REQUIRED TO PAY THE EXPENSE OF ADMINISTRATION AND SUPERVISION OVER LEASES AND PERMITS AND THE PRODUCTS THEREOF.

AFTER REFERRING TO THE PROVISIONS OF THE STATUTE QUOTED AND TO THE ACTION HERETOFORE TAKEN PURSUANT THERETO, YOUR SUBMISSION CONTINUES AS FOLLOWS:

I SUBMIT HEREWITH A COPY OF A REPORT MADE TO ME ON THE RED RIVER SITUATION AND INVITE YOUR PARTICULAR ATTENTION TO PAGES 79 TO 81 THEREOF. FROM THIS REPORT IT WILL BE OBSERVED THAT ACCORDING TO THE AUDITED REPORT OF THE RECEIVER ON OPERATIONS FROM APRIL 1, 1920, TO JUNE 30, 1924, OIL AND GAS WERE PRODUCED HAVING A TOTAL VALUE OF $5,253,041.97, THAT THE FUND HELD BY THE RECEIVER AS OF JUNE 30, 1924, WAS $3,025,196.23, FROM WHICH THERE IS DEDUCTED A TOTAL OF $1,023,297.30, COMPRISING ROYALTY, CERTAIN RECEIVERSHIP EXPENSES INCLUDING DEBIT BALANCES OF UNREMUNERATIVE WELLS, COSTS OF LITIGATION, ETC., LEAVING A SURPLUS OF $2,001,898.96. THE PLAN OF PROCEDURE OUTLINED IN THIS REPORT DISTRIBUTES TO EACH WELL HAVING A CREDIT BALANCE A PORTION OF THE ABOVE TOTAL DEDUCTION PRO RATA TO ITS CREDIT BALANCE AND PROPOSES A SIMILAR DISTRIBUTION OF THE SURPLUS. THIS CONNECTION SEE NOTE A, PAGE 81, OF THE REPORT. UNDER THIS PLAN THE ITEM OF ROYALTY DUE TO THE UNITED STATES IS COMPUTED ON THE TOTAL PRODUCTION OF THE OIL AND GAS WITHOUT REGARD TO THE INTEREST OBTAINED ON THE FUNDS AND A SUBSEQUENT AND SEPARATE DISBURSEMENT OF THE SURPLUS UNDER THE SECRETARY'S OPERATIONS IN A SIMILAR MANNER IS PRESUPPOSED.

YOU HAVE HERETOFORE RULED WITH RESPECT TO FUNDS HELD UNDER THE ACT OF MARCH 4, 1923, THAT THEY CONSTITUTE AN APPROPRIATION IN GENERAL TERMS AND IN CONSEQUENCE I ASSUME THAT YOUR APPROVAL OF THE FINAL ADJUSTMENT AND PAYMENT OF THE IMPOUNDED MONEYS IS REQUIRED. I THEREFORE SUBMIT THE FOLLOWING MATTERS FOR YOUR OPINION AND ADVICE.

1. WHETHER THE PLAN FOR PRORATING THE DEDUCTIONS AND ACCUMULATIONS, AS HERETOFORE RECOMMENDED, IS IN ACCORDANCE WITH THE STATUTE AND MEETS WITH YOUR APPROVAL.

2. WHETHER THE SAME PLAN SHOULD BE FOLLOWED IN THE FINAL ADJUSTMENT OF THE SECRETARY'S OPERATION OF THE FIELD SINCE JUNE 30, 1924.

3. WHETHER THERE MAY NOT BE PAID SOON AFTER DECEMBER 1, 1925, THE CREDIT BALANCES WHICH WILL ACCRUE TO EACH LESSEE OUT OF FUNDS SECURED BY THE FEDERAL RECEIVER AND APPROPRIATED TO THE LESSEES BY SECTION 4 OF THE ACT, LEAVING FOR FUTURE ADJUSTMENT AND PAYMENT ACCOUNTS ARISING FROM OPERATIONS BY THE SECRETARY PURSUANT TO SECTION 5 OF THE ACT. THIS IS FEASIBLE AS OPERATIONS SINCE JUNE 30, 1924, HAVE RESULTED IN A PROFIT WHICH WILL CERTAINLY EXCEED $250,000 SO THAT THERE IS NO QUESTION OF LOOKING TO THE RECEIVERSHIP FUNDS FOR PAYMENT OF ANY DEFICIT UNDER OPERATIONS PURSUANT TO SECTION 5 OF THE ACT.

4. WHETHER INTEREST UPON THE ROYALTIES RESERVED TO THE UNITED STATES SHALL BE DEDUCTED FROM THE RECEIVERSHIP FUNDS AND HELD AS A PART OF SUCH ROYALTIES.

THE DISBURSEMENT PLAN STATED IN THE RECOMMENDATION INCLOSED HEREWITH WAS SERVED UPON EACH PROSPECTIVE LESSEE UNDER THE ACT AND HAS NOT BEEN OBJECTED TO BY ANY OF THEM. AS YOU KNOW, EVERY EFFORT IS BEING MADE TO BRING THIS MATTER TO A CLOSE AT THE EARLIEST POSSIBLE MOMENT AND AN EARLY OPINION UPON THE MATTERS HEREIN PRESENTED WILL BE GREATLY APPRECIATED.

1 AND 2. IN SO FAR AS HERE CONCERNED, THE STATUTE FIXES TWO SPECIFIC PERIODS OF OPERATION, VIZ, OPERATION UNDER THE COURT RECEIVERSHIP AND OPERATION BY THE SECRETARY OF THE INTERIOR BETWEEN THE DATE OF THE TERMINATION OF THE COURT RECEIVERSHIP, JUNE 30, 1924, AND THE DATE THE WELLS AND LAND ARE TURNED OVER TO THE LESSEES, PROPOSED AS DECEMBER 1, 1925. IN YOUR ACCOUNTING YOU HAVE SEPARATED THE FUNDS EARNED BY EACH WELL DURING THESE TWO PERIODS, RESPECTIVELY, AND IT IS PROPOSED TO MAKE TWO DISTRIBUTIONS OF THE FUND TO THE LESSEES BASED ON THE SEPARATE AND DISTINCT ACCOUNTING. WHILE THE SEPARATE ACCOUNTING DURING THE TWO PERIODS IS PROPER, THERE IS NO PROVISION FOR TWO DISTRIBUTIONS TO THE LESSEES BASED ON SEPARATE ACCOUNTING, BUT ON THE CONTRARY, THE LANGUAGE OF THE STATUTE SHOWS AN INTENT THAT THE MONEYS EARNED FROM THE WELLS AND ACCUMULATED DURING THE TWO PERIODS CONSTITUTE ONE FUND AND THAT ONE DISTRIBUTION SHALL BE MADE OF THE ENTIRE NET AMOUNT DUE EACH LESSEE WHEN ALL OF THE AUTHORIZED DEBIT ITEMS SET FORTH IN THE STATUTE, INCURRED DURING BOTH PERIODS, SHALL HAVE BEEN DEDUCTED.

FOR INSTANCE, IN SECTION 5 OF THE STATUTE, SECOND PROVISO, THE SECRETARY OF THE INTERIOR IS AUTHORIZED TO USE MONEYS "IMPOUNDED FROM PAST PRODUCTION"--- THAT IS, DURING THE RECEIVERSHIP PERIOD--- FOR ALL NECESSARY EXPENSES OF ADMINISTRATION AND OPERATION. IT IS NOTED FROM THE ITEMIZATION BY WELLS ON PAGE 81 OF YOUR REPORT THAT 35 WELLS SHOW A CREDIT BALANCE AT THE TERMINATION OF THE RECEIVERSHIP PERIOD, ON THE BASIS OF WHICH THE LESSEES THEREOF WOULD SHARE IN THE DISPOSITION OF THE SURPLUS AS OF THE TERMINATION OF THE RECEIVERSHIP, WHEREAS THE ITEMIZATION ON PAGE 82, NOTE B OF YOUR REPORT, AS OF MARCH 31, 1925, SHOWS THAT WELLS NOS. 156 AND 168, HAVING A CREDIT BALANCE AT THE END OF THE RECEIVERSHIP PERIOD, THEN HAD A DEBIT BALANCE. WELLS NOS. 179, 195 AND 205, SHOWING A CREDIT BALANCE AT THE END OF THE RECEIVERSHIP PERIOD, DO NOT APPEAR IN THE REPORT AS OF MARCH 31, 1925, AND WELLS NOS. 155, 163, 198, 200, 201, AND 226, APPEARING IN THE REPORT AS OF MARCH 31, 1925, DO NOT APPEAR IN THE REPORT COVERING THE RECEIVERSHIP PERIOD. THIS IS NOT EXPLAINED, BUT AS TO ALL WELLS IN EXISTENCE AND OPERATED DURING THE TWO PERIODS, THE DISTRIBUTION OF SURPLUS SHOULD BE BASED ON THE DEBIT AND CREDIT ITEMS FOR THE COMBINED PERIOD. LOSSES SUSTAINED BY A PARTICULAR WELL DURING OPERATION BY THE SECRETARY OF THE INTERIOR SHOULD BE PAID FROM "MONEYS HERETOFORE IMPOUNDED FROM PAST PRODUCTION" ON THAT WELL DURING THE RECEIVERSHIP PERIOD, AND NOT CHARGED TO OTHER WELLS, WHICH WOULD BE THE RESULT IF A DISTRIBUTION WERE MADE OF THE FUNDS DERIVED FROM THE OPERATION OF SUCH WELL DURING THE RECEIVERSHIP PERIOD ONLY. WHILE THERE WOULD APPEAR TO BE NO OBJECTION TO THE GENERAL PLAN FOR DETERMINING THE AMOUNT DUE EACH LESSEE, THE DISTRIBUTION OF THE SURPLUS WILL BE AUTHORIZED ONLY ON THE BASIS OF THE ACCOUNTING AS OF THE DATE THE WELLS ARE RELINQUISHED BY THE GOVERNMENT AND TURNED OVER TO THE LESSEES.

THERE HAS BEEN SUBMITTED NOTHING SHOWING IT IN THE INTEREST OF THE UNITED STATES TO MAKE WHAT MAY BE CLASSED A PARTIAL DISTRIBUTION. THE REASON DOES NOT APPEAR TO BE IN ANY NEED CONNECTED WITH MAKING THE LEASES BEGINNING DECEMBER 1, 1925. APPARENTLY COMPLETE DISTRIBUTION IS NOT POSSIBLE BY THAT TIME AND IN THE ABSENCE OF ANY FACTS SHOWING THE NEED NO DISTRIBUTION WOULD SEEM PROPER UNTIL COMPLETE DISTRIBUTION CAN BE MADE.

THERE IS EXPRESSED NO OPINION ON THE CORRECTNESS OF THE ACCOUNTING REPRESENTED IN THE SUBMISSION, THAT NECESSARILY BEING A MATTER FOR AUDIT UNDER CUSTOMARY PROCEDURE, AND NOTHING HEREIN STATED IS TO BE UNDERSTOOD AS EXPRESSING APPROVAL OF THAT ACCOUNTING.

3. THIS QUESTION HAS BEEN ANSWERED. IT IS ASSUMED YOUR STATEMENT THAT OPERATIONS SINCE JUNE 30, 1924, SHOW A PROFIT, REFERS TO THE AGGREGATE AND NOT TO ALL INDIVIDUAL WELLS.

4. IF THE RECEIVERSHIP FUNDS EARNED INTEREST PRIOR TO TRANSFER TO THE SECRETARY OF THE INTERIOR, THE INTEREST EARNED ON THE AMOUNT REPRESENTED BY THE ROYALTIES DUE THE UNITED STATES SHOULD BE HELD AS A PART OF SUCH ROYALTIES.