The Navy first became seriously interested in oil fuel in 1902-3. A board was appointed to investigate the use of oil as fuel on naval vessels. It was known as the Navy liquid fuel board, and consisted of Lieutenant Commanders Frank Bailey, Wythe M. Parks, and John R. Edwards, all officers of the Engineer Corps, and at the time on duty at the Bureau of Engineering. The experiments were conducted by Lieutenant (J.G.) John Halligan, U.S. Navy, at that time in command of the torpedo boat Rodgers. The experiments were successful but were not encouraged, due to the uncertainty of a supply of oil.
In the next few years certain improvements were made, principally by Schutte and Koerting Company in Germany, which improved the method of burning the fuel oil in that mechanical atomization replaced air and steam atomization. This really made possible the use of fuel oil for naval vessels.
In 1911, the design of the battleships Nevada and Oklahoma was under consideration and it was found that great improvement over the last coal-burning battleship (Delaware) could be realized by adopting oil as fuel.
The question of an adequate supply of fuel oil in case of a national emergency was of paramount importance. The Secretary of the Navy addressed the following letter to the Secretary of the Interior in June, 1912:
There exists a situation seriously affecting this department’s future policy in the powering of naval vessels, and in which the co-operation of the Department of the Interior is required.
Since the beginning of the American Navy our vessels, ship for ship, have been superior to those of our enemies. To this, largely, our uniform success in naval warfare has been due. Naval ordnance, engineering, and construction have now become so standardized throughout the world, however, that it is difficult to maintain this superiority.
It is now definitely determined as a result of years of investigation, experiment, and development that the use of oil as a fuel will render our vessels distinctly superior to the coal-burning vessels of other navies.
Our position as an oil-producing nation should permit us to adopt this simple means of maintaining a superiority of type of vessels which is denied to others, because no other important nation, except Russia, has an oil supply which is dependable in time of war.
In order to profit fully from the advantages of the liquid fuel, bunker spaces adjacent to the fire- rooms are omitted in an oil-burning vessel, the fuel being stored in remote portions of the vessel which are unimportant for other uses. It is not practicable to convert such a vessel into a coal burner. It is manifest then that with our important naval vessels oil burners, a failure of the supply might constitute a national calamity.
Therefore this department is unable to profit from the use of fuel oil to the extent of definitely adopting it for capital vessels until the certainty of a dependable supply sufficient for the possible demands of war has been established. This is estimated to be 250,000,000 barrels.
I am informed that there is in California, on public lands withdrawn from entry, oil estimated at four billion barrels. Were it definitely established that a sufficient quantity of this oil would remain in the ground, there would be no occasion for the present concern of this department. It is understood, however, that until sufficient quantity of the oil has been definitely reserved for the Navy there will always be a possibility of legislation permitting the removal of this oil under leases.
The demand for oil will, within the next few years, considerably increase. Already foreign nations are importing American oil for the purpose of building up artificial reserve supplies.
This department therefore earnestly requests the co-operation of the Department of the Interior to secure a definite reservation for the Navy by executive order of oil-bearing public lands in California sufficient in extent to insure a supply of 250,000,000 barrels.
The first withdrawal creating Naval Petroleum Reserve No. 1 was made by President Taft on September 2, 1912, and read as follows:
It is hereby ordered that all lands included in the following list and heretofore forming part of Petroleum Reserve No. 2, California No. 1, withdrawn on July 2, 1910, from settlement, location, sale, or entry and reserved for classification and in aid of legislation under authority of the act of Congress entitled:
“An act to authorize the President of the United States to make withdrawals of public lands in certain cases” (36 Stat. 847), shall be held for the exclusive use or benefit of the United States Navy until this order is revoked by the President or by act of Congress. To this end, and for this public purpose the order of July 2, 1910, is modified and the withdrawal of that date is continued and extended in so far as it affects these lands.
Mt. Diablo Meridian
T. 30 S., R. 22 E., Sec. 24, all.
T. 30 S., R. 23 E., Sec. 10, all;
Secs. 12 to 30, inclusive;
Secs. 32 to 36, inclusive;
T. 31 S., R. 23 E., Secs. 1 to 4, inclusive;
Secs. 10 to 14, inclusive;
T. 30 S., R. 24 E., Secs. 17 to 20. inclusive;
Secs. 28 to 34, inclusive;
T. 31 S., R. 24 E., Secs. 1 to 12, inclusive;
Sec. 18, all.
Naval Petroleum Reserve No. 2 was created by executive order of President Taft on December 13, 1912, reading as follows:
It is hereby ordered that all lands included in the following list and heretofore forming a part of Petroleum Reserve No. 2, California No. 1, withdrawn on July 2, 1910, from settlement, location, sale, or entry and reserved for classification and in aid of legislation under the authority of the act of Congress entitled:
“An act to authorize the President of the United States to make withdrawals of public lands in certain cases” (36 Stat. 847), shall be held for the exclusive use or benefit of the United States Navy until this order is revoked by the President or by act of Congress. To this end and for this public purpose the order of July 2, 1910, is modified and the withdrawal of that date is continued and extended in so far as it affects these lands.
Mt. Diablo Meridian
T. 31 S., R. 23 E., Secs. 7 to 9, inclusive;
Secs. 15 to 18, inclusive,
Secs. 20 to 23, inclusive;
Secs. 25 to 29, inclusive;
Secs. 33 to 36, inclusive;
T. 31 S., R. 24 E., Secs. 30 to 32, inclusive;
T. 32 S., R. 23 E., Secs. 1 to 3, inclusive,
Secs. 11 to 13, inclusive,
T. 32 S., R. 24 E., Secs. 2 to 18, inclusive;
T. 32 S., R. 25 E., Sec. 18, all.
Litigation immediately developed, individuals and companies claiming prior right to certain sections of land covered in the executive orders. To date, this litigation for land within the boundaries of Naval Petroleum Reserve No. 1 has not been settled. The government claims certain sections in Naval Petroleum Reserve No. 1, contending that the land was known to be mineral in character at and prior to the date of approval of the plat of survey, and title did not pass to the state as a school section. Upon settlement of the litigation affecting Naval Petroleum Reserve No. 2 and the passage of the Mineral Leasing Act of 1920, it was found that this reserve was checkerboarded with fee lands. This resulted in the leasing of the remaining areas in this reserve to various operators.
Naval Petroleum Reserves Nos. 1 and 2 are located in the southwestern part of the San Joaquin Valley of California near the town of Taft and approximately thirty miles from the town of Bakersfield. They are about four hours’ drive from Los Angeles over improved highways. In general, the reserves consist of approximately 106 square miles on which are two low-lying hills, or anticlines, below which the oil and gas are found. There is practically no vegetation on this land. In summer the temperature reaches 110o F., and in winter light freezes are not uncommon.
The Naval Petroleum Reserves in California are divided as follows:
Naval Petroleum Reserve | No. 1 | No. 2 |
Location | Elk Hills | Buena Vista Hills |
Privately owned within the reserves | 5,931 acres | 20,115 acres |
Naval lands leased to prevent drainage | 429 acres | 9,546 acres |
Naval lands unleased | 31,708 acres | 520 acres |
Total area | 38,068 acres | 30,181 acres |
According to United States Geological Survey Bulletin No. 116, by R.W. Pack, the first production was obtained in Reserve No. 1 by the Associated Oil Company on January 22, 1912, when well No. 1 on Section 30-30//24 was placed on production, yielding 350 barrels of 26o gravity oil per day. The first producing well on Reserve No. 2 was placed on production in 1910 from a depth of 1,600 feet. That same year the well was deepened to 2,500 feet and produced at an estimated rate of 2,000-3,000 barrels per day.
In these reserves the oil production comes from the formations immediately underlying a marker known as the “scalez,” which uniformly covers the Elk Hills and the Buena Vista Hills. The oil is contained in the porous space of consolidated and unconsolidated sands. At the highest point on each structure large quantities of gas are to be found with the oil, while down on the sides of the hills or structures the gas is replaced by oil, and still father down by water as shown in the following sketch.
With each barrel of oil produced there is a varying quantity of gas, containing in vapor form a varying quantity of natural gas-gasoline. The natural gasoline is collected either by compressing the gas and then cooling it, during which process the natural gas-gasoline drops out, or by passing the gas through a liquid in which the gasoline is absorbed and recovered later by distillation, or by a combination of both processes. The natural gas is used on the leases as fuel for pumping engines, etc., and the balance is sold to public utilities which pipe the greater part of it to the cities for consumption. The natural gas- gasoline recovered is used for blending with other fuels and sold for motor-vehicle and other uses.
In the following table is listed the total production of oil, gas, and gasoline from Naval Petroleum Reserves Nos. 1 and 2, and the amounts received by the government for its share of the products from July, 1920, to October, 1932.
From these figures it is noted that the government has received a total of approximately $25,000,000, to which should be added approximately $4,000,000 for oil produced previous to 1920, which amount was paid to the government.
Production | Reserve No. 1 | Reserve No. 2 | ||
Quantity | Value | Quantity | Value | |
Oil | 41,533,915.7 bbls | $37,423,262.54 | 56,378,055.8 bbls | $66,474,576.21 |
Gasoline | 30,783,011.9 gals | 3,089,259.94 | 169,895,730.6 gals | 20,395,472.80 |
Gas | 38,987,288.2 MCF | 2,192,216.23 | 56,320,979.7 MCF | 3,096,189.54 |
Government Royalty | ||||
Oil | 13,475,047.7 bbls | $12,141,403.83 | 9,325,844.8 bbls | $10,995,974.52 |
Gasoline | 1,713,839.9 gals | 171,993.57 | 8,762,880.9 glas | 1,051,961.26 |
Gas | 7,074,893.3 MCF | 397,816.15 | 8,355,783.0 MCF | 459,353.59 |
As a result of the first pan-American suit, the government was paid about $13,000,000 for production illegally obtained from the Naval Petroleum Reserves and received the tank farm at Pearl Harbor with a capacity of 4,200,000 barrels, in which had been stored 1,500,000 barrels of fuel oil which was also awarded to the government.
As a result of the second pan-American suit, the government received a judgment for $9,278,000 which will probably be settled for approximately $6,500,000, including the tax refund. This will represent full value for all production from the leases but will not include interest on the money.
Totaling the above, it is noted that the government has received almost $44,000,000 and the Navy has benefited directly by receiving storage facilities at Pearl Harbor for 4,200,000 barrels, and 1,500,000 barrels of fuel oil in storage.
As previously stated, operations on the reserves are at a minimum, the Navy making every effort to keep areas from being drilled and operators curtailing production to keep within their allowance.2 Even with these conditions in effect and with the currently low prices for petroleum products, the government is now realizing approximately $66,000 a month in royalty divided as follows:
All royalty payments are made direct to the property accounting officer, Navy Department, and delivered to the Treasury Department where the sums are entered as “miscellaneous receipts.” The funds for operating and administering the Naval Petroleum Reserves, including the reserve known as No. 3, located in Wyoming, are appropriated for that purpose each year by Congress. That appropriation has averaged $80,000 for several years but has been reduced to approximately $66,000 for the ensuing year. In comparing the amounts appropriated with receipt figures, it is evident that the national government has realized large sums from the Naval Petroleum Reserves above the amounts required for administration.
Each year Congress makes available a fund of $10,000,000 for emergency drilling purposes should such a course become necessary to protect the Naval Reserves from drainage.
Naval Petroleum Reserve No. 1 constitutes the Navy’s largest known oil reserve.
Overlying the present oil-producing sands and located on the top of each hill, or anticline, is a very productive natural gas sand. Two wells drilled to this natural gas sand on Reserve No. 1 have yielded to date, 38,987,288,240 cubic feet of natural gas, which has been sold for $397,826.15. At present the wells are closed in and will not be produced until the privately owned Standard Oil Company gas wells located as offsets are produced. One of these offset wells, known as Hay No. 7, had an initial estimated yield of 180,000,000 cubic feet per day, with approximately 2,000 pounds per square inch shut-in pressure and, to 1926, had produced 43,000,000,000 cubic feet of gas.
Previous to 1932, the gas sales contract for Reserve No. 1 did not provide for proper protection to the government’s interests in that the gas company was not required to take from Navy wells as much has as was drawn from offsetting wells both for sale and for lease purposes. Changing the wording of the contract to provide for this feature has resulted in the gas wells offsetting the Navy dry gas wells being shut in with the result that gas in being saved for a possible future emergency.
Approximately 2,632 acres of the 18,690 estimated total productive area of Reserve No. 1 have been developed from the known productive “scalez” oil zone. To give a general idea as to the productiveness of part of the structure on this reserve, the Belridge Oil Company with a lease of 142 acres has produced 8,719,055 barrels of oil or the rate of 61,401 barrels per acre, and now averages 38 barrels per acre per month. The government has realized $2,386,647.12 in royalties from this lease. The Navy wells offsetting this property on one side have been closed in since 1927. At present, with operations curtailed about 50 per cent, the government is realizing approximately $2,300 per month from this lease.
United States Geological Survey Bulletin No. 835, by Messrs. Woodring, Roundy, and Farnsworth, says “the estimated production of oil recoverable by methods now in use in this area is 400,000,000 barrels for the entire Elk Hills.” This is considered a very conservative estimate by many competent petroleum engineers, some of whom have estimated that the total production will approach 2,000,000,000 barrels.
Under present producing practices, approximately 75 per cent of the original oil content of a sand is never produced. As petroleum engineering advances, this figure will undoubtedly be decreased through closer control of gas-oil ratios, re-pressuring, and in some instances by water drive.
As previously explained, a certain quantity of natural gas is produced with each barrel of oil recovered. The quantity depends upon the gas contained in solution in the oil and the effectiveness of productive methods. Even when the producing companies have held production within the limits set by the state oil curtailment committee, there has been an excess of gas production. This production of gas has been above the market demands and the gas must be either stored or blown to the air and lost. The best place to store the gas is in an old oil zone or, preferably, an old gas field that has already produced a large percentage of its producible oil and gas. The Naval Petroleum Reserve field at Buena Vista Hills falls into this category and in addition is located close to the large source of this excess gas. During the past two years, large quantities of gas have been stored there.
The Navy Department has been willing to approve the requests of lessees for permission to store gas but has insisted that before any program is undertaken the plan for gas storage must first be approved by the department and that the company must (1) indicate the possible results to be expected; (2) inject the gas in such selected wells as will prevent the escape of the injected or originally contained gas to other than government land; and (3) properly compensate the government for the use of the reserve.
The production of oil in California has far exceeded the market demand. The excess production, with resulting excessive storage and carrying charges, has resulted in price cutting campaigns which have been disastrous for all connected with the industry. Lessees within the Naval Petroleum Reserves have had their allowance reduced and have been forced to request production relief from the terms of their leases. Without exception, the government has approved such requests when offset wells were at the same time closed in or the lessee was willing to reimburse the government for the loss of oil by drainage. Even though the government might lose some oil and gas by such a procedure, it is willing to co-operate with the lessees, even going so far in some cases as to advocate a complete shutdown.
In attempting to obtain title to land in Naval Petroleum Reserve No. 1 during the years 1910-11, several oil companies engaged in drilling campaigns which resulted in numerous wells being drilled. Several wells were drilled deep enough to penetrate the oil and gas sands; and some had not been left in condition to prevent the escape of oil and gas from the formations in which originally contained. Plans were made for their proper abandonment, and Congress appropriated $100,000 for the work on the first nine wells, which was completed in 1931 at a total cost of $89,655.85. An additional appropriation of $60,000 was made available for work on the four remaining wells, the total cost of which was $1,431.20 and the balance was returned to the Treasury. Naval Petroleum Reserve No. 1 has eighteen wells drilled by the Pan-American Petroleum Company which are being placed in an indefinitely suspended condition. The reserves have now been placed in condition to prevent loss of oil and gas resulting from improperly drilled wells or wells which have been suspended.
Administration of the Naval Petroleum Reserves is directly under the Secretary of the Navy. A naval officer in the Secretary’s Office is designated as director of Naval Petroleum Reserves, and naval officers are assigned to duty as inspectors in Los Angeles, California, and Casper, Wyoming. The necessary technical and accounting work incident to the operation of the leased land is performed by the United States Geological Survey which is reimbursed for such work by the Navy Department. The Navy Department has a petroleum engineer stationed at Elk Hills, California, and one in the Washington office to investigate and report on technical matters not referred to the Geological matters not referred to the Geological Survey.
In the following table are shown the percentages by volume of the composition of representative samples of oil from Naval Petroleum Reserves Nos. 1 and 2.
Sample | Reserve No. 1 | Reserve No. 2 | |||
1 | 2 | 1 | 2 | 3 | |
Gasoline and naphtha | 36.0 | 26.9 | 12.3 | 24.0 |
|
Gas oil | 21.8 | 23.1 | 31.4 | 25.0 | 27.2 |
Lubricating stocks | 16.3 | 19.7 | 21.4 | 19.7 | 26.2 |
Fuel oil | 25.9 | 30.3 | 34.9 | 31.3 | 46.6 |
That part listed under gas oil can be used for cracking into gasoline with a very high anti-knock rating.
Ample pipe-line facilities are available for the transportation of oil and gas from the fields to refineries located at San Francisco and at Los Angeles. In addition there are connecting oil lines leading to the coast at intermediate points, Monterey Bay, Estero Bay, Port San Luis, and Elwood Terrace, where tankers may be loaded direct.
By recent decision of the United States Supreme Court, refusing to review the decision rendered by the United States Circuit Court of Appeals in which the decision of the Federal District Court was reversed, the Pan-American Petroleum Company returned certain leases to the government and judgement for oil and gas illegally produced for approximately $9,500,000 has been given. These leases are located down structure, downhill, from certain other leases granted to prevent drainage from government to private land. The latter leases are valid and pay royalty varying from 12.5 to 55.5 per cent. The former leases will not be produced and the up-structure, uphill, leases on which high royalties are paid will draw oil and gas from under the leases not under production. However, the high royalties will compensate the government for the loss of oil and gas from the leases not being produced, and when it is found advisable to produce the down-structure leases some oil will probably remain.
Attempts have been made to have jurisdiction over the reserves transferred to other organizations and this may be done in the future. It is difficult for the politician to understand why the large revenues from the Naval Petroleum Reserves should go direct to the national Treasury. Under the present arrangement, the administration of the reserves is non-political and the mission assigned is contrary to the one that would be placed in effect were the reserves to be transferred. The original orders creating the reserves read “for the exclusive use and benefit of the United States Navy.” The present organization properly administers the reserves and control is directly under the Secretary of the Navy. As long as the oil reserves remain under the present jurisdiction the fleet may be assured that every effort is being made to carry out the idea back of the creation of the reserves and the mission assigned—“maintaining an adequate reserve of oil in the ground for the United States Navy.”