The best caution that can be given to anyone in regard to leasing or buying oil lands is to get the best possible lease men and the best possible title lawyers and abstracters money can obtain. If titles are uncertain and the property is worth while, one may take a chance, but it must be done with a full knowledge of the possible consequences.
Size of Acreage.—Lands are acquired in blocks of all shapes and sizes. Some large concerns will not take less than 40 acres of land, others will accept smaller tracts. Most companies desire larger tracts of land. Under the old system of selecting lands without geological or engineering advice tracts of 10,000 to 50,000 acres were essential. However, as knowledge of geological possibilities has become better understood, the large oil companies are looking for quality, not quantity alone, and are discarding hundreds of thousands of acres of lands on which the chances of obtaining oil production are too small to be considered good business hazards.
Public Lands.—The United States lands are obtained on a royalty basis, usually a is of all oil or gas obtained from the prop erty. The old procedure was for an oil man or a group of men to file notices or claims upon lands thought favorable for oil. One man could file on as many 20-acre blocks as he could afford to develop, with the understanding that no two blocks were contiguous in the same section of 640 acres. A group of eight men could pool their resources and file upon 160 acres in a unit, and take as many units as possible, with the understanding that no two units were possible in the same section, although four contiguous units might be secured at the intersection of four sections. This system further called for $100 per year per claim expenditure on assessment work to hold the claims. Assess ment work meant building roads, building derricks, and preparing for actual drilling operations. The claimant was given a right to his claim for the balance of the calendar year in which he filed, and all of the succeeding year, and had that time in which to do assessment work. Further by drilling a test hole and discovering oil, even a small showing, which would lead him to further expenditures, he was said to have validated his claim and had ample time to develop the property for oil.
Discovery of oil gave him his claim and no one but the Federal Government had any rights against the locator or validator.
This system, while leading to much development, was the cause of endless litigation. This was especially true when the Federal Government, in 1909, began a series of withdrawals of possible oil lands. Many men who had started to develop lands in good faith were halted, and had bitter fights with the Federal Government in order to obtain title. Some injustice and hardship was worked, due to the arbitrary stand of some Government officials. However, in many cases there were many fraudulent claims and cases of "dummy locators" and the Government action in such cases was fully justified. The effort of the Government was to conserve our petroleum re sources, and to allow the Federal Government some recourse against the wasteful methods often employed.
Federal Leasing Bill.—A new system of administration of Government Federal lands is now in force due to the passage of the Federal Leasing Bill in February, 1920. Under this bill the Government grants a prospecting permit to any reliable company, with certain restrictions. This permit gives a com pany or individual a right to select 2500 acres for prospecting, which must commence within 6 months after the permit is granted, and drill a hole to a depth of 2000 feet in 2 years. If the company finds oil within the time limit specified, it is given 640 acres on a 5 per cent royalty, and is granted a lease on the balance at a royalty not less than 12; per cent and graduated based on the size of the wells. This is not liberal treatment, but it is an operating proposition. In cases of Government lands in proven areas, a company obtains a right to prospect 640 acres and obtains 160 acres under a fair royalty, with the under standing that no one individual or company obtains more than one such tract on any one geological structure. This term geolog ical structure is subject to definition at the wishes of the Land Classification Board, and cannot be defined clearly. Every case is a special one.