MY DEAR MR. SOMERS: This is in response to your request of February 2, 1949, for a report on H. R. 354, entitled "A bill to promote the development and conservation of certain resources in the submerged coastal lands adjacent to the shores of the United States."

By a letter dated February 1, 1949, the Secretary of Defense, the Attorney General, and the Secretary of the Interior submitted to the Speaker of the House of Representatives a proposed bill covering the same subject matter as H. R. 354. The communication from the three Cabinet members, the proposed bill, and an explanatory statement were referred to your committee. Additional copies of these documents are enclosed.

For the reasons set forth in detail in the explanatory statement of February 1, 1949, and subject to the comments contained in the letter of the same date, this Department would favor the enactment of H. R. 354 if it were amended to conform with the proposed legislation submitted by the three departments. In order to conform with such proposed legislation, the following amendments of H. R. 354 would be necessary:

(1) In subsection (c), section 3, page 3, lines 14 and 15, strike out the following words: "after consultation with the National Security Resources Board."

(2) In subsection (d), section 3, page 3, lines 16 and 17, strike out the following words: "and after consultation with the National Security Resources Board."

(3) In subsection (d), section 7, page 12, line 8, between the words "terminated" and "at," insert: "by the Congress or by the President."

(4) Eliminate section 11.

(5) Renumber sections 12 to 18, inclusive, as sections 11 to 17, respectively. With the amendments enumerated above, and with such further amendments and modifications relating to the matters discussed in the letter of February 1, 1949, as the Congress may deem advisable, this Department recommends that H. R. 354 be enacted as soon as possible.

We have been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee.

Sincerely yours,

J. A. KRUG, Secretary of the Interior.

Secretary KRUG. At the time when the three-department proposal was made, Mr. Forrestal was Secretary of Defense. I have a letter from the new Secretary of Defense, Mr. Johnson, which is short, and I would like to read it, if I may. This is addressed to the chairman of the subcommittee, Mr. Walter:

Secretary of the Interior Krug is appearing before your subcommittee today and I have asked him to read this letter into the record to express my views on the important subject under consideration.

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On June 23, 1947, the Supreme Court in the decision of the United States v. California decided that the State of California is not the owner of the 3-mile marginal belt along its coast and that the Federal Government rather than the State has paramount rights in and power over that belt, an incident to which is full dominion over the resources of the soil under that water area, including oil." This opinion clearly recognized the predominant national defense interests in the management and control of our marginal seas and the resources thereof. These defense interests have not lessened since the date they were explicitly recognized by the Supreme Court.

In keeping with the decision of the Supreme Court the Department of Defense has consistently recommended to the Congress that the management and control of the resources in the marginal seas remain in the Federal Government.

I trust that your committee, after a careful examination of this subject, will report out a bill that will recognize the validity of the Surpreme Court's decision and reflect the national defense needs upon which the decision was, in large measure, based.

With kindest personal regards, I am

Sincerely yours,

LOUIS JOHNSON.

Mr. GOSSETT. Mr. Krug, on that point we are now producing more petroleum than we have a market for, are we not? That is, the domestic production is now exceeding the domestic demand, if you take into consideration the amount of oil that is being imported, is that not the truth?

Secretary KRUG. No, not exactly; but if your point is that we could produce more than we need at the moment, that is true.

Mr. GOSSETT. As of the present there is no particular need for any additional production offshore. It would simply add an additional factor to the present stressed market, would it not?

Secretary KRUG. If you are talking about current production, that is true; but I think we must distinguish between current production and the capacity necessary to carry us in emergencies. In my opinion, we should have about 2,000,000 barrels a day of additional capacity to produce. We should know it is there and know it is ready to go. In an emergency, we would need in a short period of months a couple of million barrels of production which we do not now have.

Mr. GOSSETT. A lot of independent producers in my area have been crying about oil imports and a good many of them have been stacking their rigs. Some of the refineries have been closing down. There is a debatable question, of course, as to how much of that is due to importation of foreign oils and how much is due to other economic factors. However, as I understand the situation, exploration is now being curtailed rather than expanded.

Secretary KRUG. I would not say things are being curtailed. It is true that some of the producers have been nervous about_future markets and have temporarily eased up on their operations. I think the chairman would be interested to know that the question of imports and the question of how we can establish and maintain this extra capacity to produce that I mentioned, without glutting the market, are now under consideration by the Department of the Interior and the National Petroleum Council. I am hopeful that those deliberations may give us some helpful information concerning both those points.

Mr. GOSSETT. There are a good many confusing elements in the picture. I recall that a few years ago we were all alarmed over the alleged shortage in petroleum. I have some figures here which show world production to be substantially up. Tremendous reserves have been discovered in Canada, I understand. We understand that world production of petroleum now exceeds world consumption and will exceed world consumption for some time to come. If that be true, then, except to have it in being, there is no particular point in exploring for oil in these offshore areas.

Secretary KRUG. I have some strong feelings on that which I would like to express in a moment. There are just two other points I would like to make concerning this particular matter, and then I would like to give you my view on that one.

Mr. GOSSETT. Go right ahead.

Secretary KRUG. I want to make it clear that I am strongly opposed, and the President has informed me that he is strongly opposed, to the various pending bills which are designed to transfer to the coastal States, as a gift, the immensely valuable rights which the people of all the United States have in the submerged lands and mineral resources of the continental shelves. The objection on my part and on the part of the President extends with equal force to any proposed measure, such as H. R. 5991, which you have referred to and which would delegate to the coastal States the power to control and manage, under State law, the development of the oil and gas deposits in the submerged coastal lands beneath those portions of the open sea which are within the seaward boundaries of the coastal States.

You refer, Mr. Chairman, to this bill and a companion bill, which have been labeled erroneously as being a State proposal and a Department of the Interior proposal, respectively. We have not made any such proposal. We did work for a period of months with various people, particularly Speaker Rayburn, in the hope that some kind of formula might be contrived that would meet some of the problems of the States without in any way jeopardizing or affecting the basic decision of the Supreme Court in the California case. Those efforts were unsuccessful.

Mr. GOSSETT. Mr. Secretary, on that point, just what was agreed to, if anything? What sort of a bill would meet with your approval? Secretary KRUG. I hope you will not hold me to these particular words, because I am not a lawyer, but generally our position was that as long then as the bill recognized the paramount rights and interests of the Federal Government in the submerged lands seaward of the tidelands that I referred to a few minutes ago, we would have no objection to a division of the revenue from those lands between the Federal Government and the coastal States, as might be proposed in the Congress. In short, if the problems of the coastal States are of a financial nature, we are perfectly willing that the Congress itself should decide what the equities are with respect to that. The attempt broke down because the States insisted that they should have management rights in the lands beneath the open sea, even, in the case of California, in the area in which the Supreme Court said, as I quoted a few moments ago, that the State does not have any rights of the nature claimed.

In effect, we came to a parting of the ways on the real principle that is at issue here.

Mr. GOSSETT. As I read these bills, neither bill clears up this question of title. They both leave this marginal sea, these submerged lands, the question of title to those lands more or less up in the air, do they not?

Secretary KRUG. I would not say so. The proposed bill that we have submitted follows the decision of the Supreme Court in the California case, but would not take away from the States of Texas and Louisiana, or any other State that has started suit, if there are any, their right to have the Supreme Court review the circumstances of their particular cases. In short, we did not want Congress to take any action that would prejudice the position of those States before the Supreme Court.

Mr. GOSSETT. Mr. Secretary, this is just my individual opinion and I do not profess to state the opinion of the entire committee, but it seems to me that neither bill completely settles this thing, because we leave the concept of control. We say the Federal Government shall have paramount power and dominion over such area. The California decision stated they did not have title or ownership. In no place in the decision of the Supreme Court does it say that the Federal Government does have title. In other words, we seem to be about to create a new species of ownership, is that not so?

Secretary KRUG. I think you will have to ask Mr. Perlman that question because it is strictly a legal one; but from my point of view, I think the Court decision is clear enough for the Congress to go ahead with a management bill that would permit the Federal Government to lease the mineral deposits in the submerged lands seaward of the low-water mark along the coast.

Mr. GOSSETT. On that point it seems necessary, does it not, that Congress should do something to clarify this situation and either vest unquestioned management rights in the Federal Government or unquestioned management rights in the States, over the disputed areas. In other words the whole thing is confused and needs clarification.

Secretary KRUG. That is the vitally important thing, and that is the real weight of my testimony here this morning. I think it is extremely important for Congress to face up to this problem and decide it. You said it does not make much difference at the present time whether we develop the submerged lands or not. I feel that it does.

Granted, we have at the moment an excess of petroleum productive capacity over world demand. However, we do not have the reserve capacity necessary to supply our future needs. We could get a good part of that reserve capacity by future development within our own borders and in the submerged lands adjacent to our coasts. I think to depend on oil from the Middle East, or from even South American countries, is extremely dangerous in an emergency.

Mr. GOSSETT. I think we should push the settlement of the tidelands controversy. At the moment, as you probably know, in the Gulf alone, the oil companies are spending millions of dollars a year in development. I think they are doing it at great risk as long as this matter is not decided.

Mr. GOSSETT. Mr. Secretary, I believe the testimony of industry the other day was that they had spent in off-shore operations in the Gulf, off the shores of Louisiana and Texas, roughly $180,000,000, from which they had only realized something less than $1,000,000 in return. So those operations to date at least have not been so very profitable.

Secretary KRUG. They have great promise. I am sure the experts from the oil companies would agree with me that, while they have spent upwards of $100,000,000 on development and have received very little return on it, in the future they are going to get their money back and more. However, they are not going to get it back if they are poaching on Federal lands without having a license from the Federal Government, and I think they are running a very serious risk at the moment.

Mr. GOSSETT. I understood their testimony to be that it costs five times as much to explore for oil off shore as it does on shore. That being true and recognizing the hazards of any production that exists

in the Continental Shelf in time of war, is it not relatively more important that we explore onshore possibilities rather than offshore possibilities?

Secretary KRUG. No, sir; in time of emergency it would be more difficult to get the oil from the submerged lands than from interior locations. If we were really doing this thing wisely we would take as much of our peacetime supply as possible from the submerged lands and have our productive capacity in areas that are absolutely certain in time of emergency.

Mr. GOSSETT. Of course, in time of emergency the only oil that will be worth anything to us is oil that is in production. We are not going to be able to go out in times of emergency and tap new sources of supply.

Secretary KRUG. Oh, yes; we will have to do some tapping of new sources of supply. I grant you the bulk of our production will have to come from areas that we know, but in times of emergency we will have to step up the drilling of new wells.

Mr. GOSSETT. Go ahead, sir.

Secretary KRUG. That finishes the outline of my statement. There are many detailed points in the statement, but I think my statement speaks for itself.

With regard to a division of Federal revenues from the submerged lands, our proposal suggests nothing other than that is a matter Congress should decide.

Mr. GOSSETT. Mr. Secretary, this may not be a proper question, and you may not be able to answer it. Assuming that the committee should report H. R. 5991-I am sure the committee, if it did report H. R. 5991 or 5992, they would do it on the premise that it was a compromise and one that would likely be accepted by the administration.

Could you give the committee any assurance that the President might approve either of these bills if we should pass them through this House and the Senate?

Secretary KRUG. I cannot. My very definite feeling is that he would veto H. R. 5991. I believe that is the one labeled at the moment as the State proposal. I am not sure that he would approve or accept 5992. Mr. GOSSETT. Does H. R. 5992 meet with your approval as written or would you make some changes in it?

Secretary KRUG. I would probably make some changes in it, too. We just have not had time to refine the wording of that draft, and I think the Department of Justice would like to do a lot of additional work on that before they could consider it as acceptable.

Mr. GOSSETT. It was drawn, however, in hurried collaboration between Commerce and Justice, was it not? That is, H. R. 5992 ?

Secretary KRUG. Interior and Justice. It was drawn in a hurry, to try and find some draft that might be a middle ground. Obviously, it is not a draft that can be regarded as wholly acceptable, because I think there are many questions of phraseology and some of substance we did not have time to work out.

Mr. GOSSETT. Do you at this time have any substantial changes to make in it?

Secretary KRUG. I have not personally examined it in that detail. Mr. GOSSETT. You do believe this is an area in which Congress should act?