THE CABINET: Sales of Shale

Some 800,000 acres of shale oil land in western Colorado, owned by all the U. S. people and said by the U. S. Geological Survey to contain 40 billion barrels of petroleum (value: $1 per barrel, minimum), loomed more and more clearly in the public prints last week as an interesting national possession, also as the focus of an alleged national scandal. Ralph S. Kelley, the Interior Department’s field chief at Denver, last fortnight resigned his post, loudly protesting that Secretary of the Interior Ray Lyman Wilbur was not taking proper care of all the people’s great property (TIME, Oct. 6). The Department of Justice asked him for his evidence. He replied last week that the Department of Justice was prejudiced. Then, while Washington officials fumed, he began to tell his story publicly, in the columns of the arch-Democratic, crusading New York World.

“Worthless.” Secretary Wilbur’s first step was to refuse to accept Field Chief Kelley’s resignation and, instead, to suspend him. Mr. Kelley, slight, grey-haired, softspoken, has been a Federal employe for 25 years. Secretary Wilbur denounced his charges as “reckless and false,” called him a “clerk.” While Field Chief Kelley talked only of oil land sales, Secretary Wilbur confused the issue by talking chiefly of oil leases, none of which have been granted under the Hoover conservation policy. As to sales he said: “These oil shale lands aren’t worth anything now. You couldn’t sell a strip of it to save your life.”

Again Nye. Soon the names of Wilbur and Kelley were joined in the headlines by that of ambitious young Senator Gerald Prentice Nye of North Dakota, Chairman of the Public Lands Committee, investigator of the second oil scandals (1928). Senator Nye summoned Field Chief Kelley for an hour’s conference after which he declared: “I can’t help but be impressed by the spirit moving Mr. Kelley. I think he is entitled to a hearing. His charges do not go to the door of Secretary Wilbur. There is a door to which his objections lead and that door should be opened.”

Kelley’s Story. When Mr. Kelley sold his story to the World, Secretary Wilbur indignantly exclaimed: “Kelley evidently fell into designing hands of those who would use him to their advantage. He is being exploited.” Mr. Kelley and the World agreed that the latter had taken the story only after “considerable persuasion.”

The nub of Kelley’s charges, as revealed by his World articles, was that the Department of the Interior, under heavy political pressure, had backed down on its interpretation of the mining laws so far as to validate worthless land claims of oil companies in Colorado. Under the old law a locator could secure full title to a 160-acre tract from the U. S. by paying $2.50 per acre, spending $100 per year on “development,” proving substantially that he had discovered oil (or mineral) on his land. In 1920 Congress passed an act which substituted leasing for sale of public oil land to private interests. When the leasing act became effective, many oil prospectors held pre-1920 land claims of uncertain validity. If they could prove their compliance with the old law, they could keep their land; if not, the property reverted to the U. S. Big oil companies had bought up the land patents of original locators, were gravely troubled about their titles.

Dr. Work’s Decree. In the Colorado shale fields, traces of oil appear on the surface of the ground. Were these enough, without drilling, to fulfill the law’s “discovery” requirement? In 1924 the Interior Department ruled that surface traces were not sufficient, that their connection with underground oil supplies was not proved. Potent oil companies—Pure Oil, Union of California, Prairie, Continental, Midwest—massed their legal forces against this decision. Three years later with the aid of Colorado’s Senators they induced Secretary of the Interior Hubert Work, a Coloradoan, to reverse the Department’s position. By Dr. Work’s decree, surface evidence of oil in shale lands now constitutes “discovery” and validates land patents granted prior to 1920.

At the Denver office, Chief Kelley strenuously opposed Dr. Work’s decision and policy. He wanted the U. S. to hold its land, he insisted that the oil companies’ claims were “pure paper.” He quarreled with oil lawyers and when last summer he was transferred to Washington, he suspected the oil companies of having made good their boast that they would have him ousted.

Worthless? Because no cheap method has yet been devised for extracting oil from the tough dark shale of Colorado, geologists estimate the production cost of such oil at $3 per barrel, as compared with current petroleum prices of $1 per barrel. Oil companies with foresight, however, have bought up Colorado shale land from original prospectors on the theory that eventually a cheap extraction process will be found. Denver records show the following holdings: Standard Oil of New Jersey, 20,000 acres; Union of California, 18,000; Continental, 10,000; Texas, 10,000; Prairie, 7,000; Deep Rock, 4,000; Pure Oil, 4,000; Honolulu, 2,500. About 100,000 out of the 800,000 acres of Colorado shale land have been patented; another 100,000 acres are patentable.

Lawyer Potter. The U. S. brought suit at Denver last week against Delos D. Potter, attorney for Union Oil Co. of California, and others, to invalidate a 200-acre shale oil claim. Chief Kelley before his resignation had developed evidence on which the Government charged that Potter obtained oil land patents by the fraudulent use of a dummy applicant, one Dezell Ostrander, who took title to the property as a homesteader only to pass it over to Potter for $2,000. Delos D. Potter was prominent among those who induced Dr. Work to make his famed ruling of 1926. Last week he figured as Field Chief Kelley’s most immediate antagonist, the loudest denouncer of Kelley’s efforts to reveal laxity in the Interior Department.