Full opinion text
BEAUMONT, District Judge. This action was brought by the United States to obtain a judicial determination of the extent of authority of the Secretary of the Interior to place minimum limitations upon valuations for royalty purposes of the interests of the United States in oil and gas produced from public lands in the Kettleman Hills field of California held by defendants under oil and gas leases issued pursuant to the provisions of Section 14 of the Act of Congress approved February 25, 1920, known as the Mineral Lands Leasing Act, 30 U.S.C.A. § 181 et seq.; to recover from defendants certain unpaid and delinquent royalties which have become due on the basis of limitations on valuations as determined by the Secretary of the Interior; and to obtain cancellation of leases of such defendants as fail to comply with the court’s orders herein sought. The prayer of the amended complaint seeks, in the event the orders of the Secretary are held invalid, a decree prescribing the proper basis upon which determination of the value of the government royalty interest shall be made, and an order that the lessees be required to account accordingly. Congress, by the aforesaid Mineral Leasing Act of 1920, authorized the Secretary of the Interior to enter into leases of the public mineral lands with permittees who had previously established to his satisfaction that valuable oil or gas had been discovered within the limits embraced in their permits. The Act specified the amount of acreage which the Secretary was authorized to lease, the term of the lease and the royalty which must be obtained, required insertion in the leases of provisions against waste and provisions to insure the exercise of reasonable diligence, skill and care in the operation of the property, and authorized the Secretary to include such other provisions as he deemed necessary to insure the sale of the production of such leased lands to the United States and to the public at reasonable prices, “for the protection of the interests of the United States, for the prevention of monopoly, and for the safeguarding of the public welfare.” 30 U.S.C.A. § 187. Congress further authorized the Secretary to prescribe necessary rules and regulations under the Act and to do all things necessary to carry ou-t and accomplish the purposes of the Act. By section 31 of the Act it was provided that any lease issued by the Secretary under the Act might be forfeited and canceled by an appropriate proceeding in the proper United States district court in the event that the lessee failed to comply with the provisions of the Act, or of the lease thereunder issued, or of the general regulations which the Secretary promulgated under the Act, and which were in force at the date of the lease. Specifically as to royalties due the gov-eminent under the leases, the Act provided that “such leases shall be * * * upon a royalty of 5 per centum in amount or value of the production.” 30 U.S.C.A. § 223. There were two general sets of regulations which the Secretary promulgated under the Act and which were in force at the date of the leases now before the court-The first were the regulations of 1920, containing a proposed standard form of lease. Thereafter followed the regulations of July 1, 1926. Insofar as here pertinent, the regulations of 1926 set up the administrative machinery for supervision of the leased areas and provided by section 1(h) thereof that the supervisor therein designated to be appointed by the Secretary should compile records of production of oil, gas, and natural-gas gasoline from the leases and compute and report the amount and value of accrued royalties. By section 2(s) the regulations provided that the lessee should file with the Secretary copies of all contracts for the disposition of oil, natural gas and natural-gas gasoline produced, except such portions as were used for production purposes, and in the event the United States elected to take its royalties in money instead of in oil, gas or gasoline, the lessee was not to sell or otherwise dispose of the products of the land leased except in accordance with the sales contract or other method first approved by the Secretary. By section 4 of the regulations the method of computation and payment of royalties on natural gas and natural-gas gasoline was specified. These latter provisions will be considered later under the heading “The Net Realization Problem”. By section 6 the lessees were given the right to appeal to the Secretary from all orders issued by the supervisor. The discovery well of the Kettleman Hills public mineral lands was “brought in” October 5, 1928. The leases now before the court were executed in the period from 1929 to 1931. In general, these leases followed the precise directions of the statute, and called for a government royalty of 5% on all oil and gas produced. In particular they contained two general provisions which have given rise to the present controversy. These were the provisions of section 2(c) (3) and 2(d) of the leases. Section 2(c) (3) provides that “the value in the field where produced, of gas and casing-head gasoline, for royalty purposes, unless such gas or casing-head gasoliñe is disposed of under an approved sales contract or other method as provided in subdivision (d) of this section, shall be as fixed by the Secretary of the .Interior.” By Section 2(d) the lessees agreed “to file with the Secretary of the Interior copies of all sales contracts for the disposition of oil and gas produced hereunder except for production purposes on the land leased, and in the event the United States shall elect to take its royalties in money instead of in oil or gas, not to sell or otherwise dispose of the products of the land leased except in accordance with a sales contract or other method first approved by the Secretary of the Interior.” Section 2(d), it may readily be seen, was identical with section 2(s) of the regulations of 1926. On or about July 25, 1929, in order to forestall a wasteful campaign of competitive drilling at Kettleman Hills, a so-called “shut-in” agreement was entered into between the United States and its permittees and the owners and lessees of most of the privately-owned land in the field, whereunder production at Kettleman Hills was limited for a certain period pending arrangement for development and operation of the field’s productive acreage as a unit. After Congress amended the Mineral Leasing Act of 1920 on July 3, 1930, 30 U.S.C.A. § 184, in order to authorize such unit plan, the Secretary of the Interior and the lessees herein entered into the contemplated agreement. By its terms a corporation, known as Kettleman North Dome Association (hereinafter referred to as “Kenda”), was formed, of which the lessees herein became members, and to which they transferred their operating rights to the leases and their productive facilities in the field. It was agreed that the association should develop and operate the lands and dispose of the products in conformity with the operating regulations then in effect, and production from the leased lands was to be distributed by Kenda to the members according to their respective interests. Each member agreed to pay its own royalties to the government. In the years 1929-1931, the Secretary became convinced that the prices at which the defendant lessees were disposing of their oil, gas and gasoline from Kettleman Hills were inadequate to reflect the true worth or value of those products for royalty purposes when the government took its royalties in money. Accordingly, on June 4, 1931, the Secretary promulgated an order seeking to protect the government royalty interest. This order has produced much of the controversy now before the court. By the order of June 4, 1931, the Secretary of the Interior advised the lessees as follows: “Your attention is called to the lease requirement (Sec. 2-d) that when the United States shall elect to take its royalties in money instead of in oil or gas, the lessee shall not sell or otherwise dispose of the products of the land leased except under a sales contract or other method first approved by the Secretary * * * : to the lease provision (Sec. 2-c-3) that the value in the field where produced, of gas and casing-head gasoline for royalty purposes shall be as fixed by the Secretary * * *, and to the fact that the minimum price basis for royalty settlements on gas in California has heretofore been fixed at 50 per 1,000 cubic feet and on natural gas gasoline in Kettleman Hills at <50 below the current published San Francisco price for gasoline in tank wagon lots, exclusive of tax, such prices to be used in computing royalty accruing to the Government unless the lessee receives a greater price in which case such greater price shall be used. Supplementing these provisions, effective July 1, 1931, and until further notice, the highest price posted in California for crude oil of equal or loiver gravity is fixed as the minimum price basis on which settlements shall be made for royalty on crude oil produced in the North Dome Kettleman Hills field, a higher price to be made the basis of settlement if and when obtainable. * * ” (Emphasis added.) On June 23, 1931, the Secretary promulgated a second order affecting royalty computations. This order likewise has produced much dispute between the parties herein. By that order the Secretary modified the previously-existing minimum price basis for computation of natural-gas gasoline royalties as follows: “Effective July 1, 1931, and until further notice, for the purpose of computing royalty accruing from lands of the United States in California, the minimum price per gallon of natural-gas gasoline in the field where produced shall be based on the average service-station price, exclusive of tax, for gasoline of standard quality at Standard and Shell stations in the metropolitan area of San Francisco and Los Angeles, as determined daily by the supervisor * * *, and shall be the sum of the following three items: (1) One cent; (2) one-half the excess, if any, of said service-station price over 5 cents; (3) one-half the excess, if any, of said service-station price over 15 cents; provided, that such minimum price shall be used in computing royalties unless a greater price is received currently for the natural-gas gasoline produced, in which case such greater price shall be used in computing royalties. * * ” (Emphasis added.) The lessees now before the court objected to reporting the value of their Kettleman Hills production and to paying their government royalties on the basis of the aforesaid minimum-price orders of the Secretary. Insisting that under the Mineral Leasing Act and their leases they were obligated to pay only according to the prices currently obtaining in the field, and challenging the authority of the Secretary under the Act and the leases to impose minimum-price limitations on their royalty obligations, each of defendants, excepting only defendants Standard, Pacific Western, and Shell (which reported and paid their royalties as directed by the minimum-price orders, but only under protest), reported and paid its oil, gas and gasoline royalties on the basis of prices it was currently paying or obtaining for its products at Kettleman Hills. Each lessee who paid on the basis of Kettleman Hills market prices, without regard to the Secretary’s minimum-price orders, was by the supervisor billed for the deficiency, if any, between such payment and that required by the Secretary’s orders. As they had a right to do by the provisions of section 6 of the regulations of 1926, such lessees (except General Petroleum Corporation) appealed from the supervisor’s billing to the Secretary of the Interior. On January 11, 1932, in Washington, D. C., the Secretary of the Interior and the appealing lessees met for a conference on the disputed royalty matters. The Secretary afforded the lessees opportunity for full discussion of the matters in controversy. At the close of the conference the Secretary announced that the extreme seriousness of the issues rendered the matter one which “should be permanently settled by judicial rather than by administrative action.” Thereafter on January 22, 1932, and before formally ruling on the lessees’ appeals, the Secretary referred the royalty controversy to the Geological Survey for a field investigation and report. The Survey report — hereinafter referred to as the “Mendenhall Report” — was presented on June 6, 1932, and its conclusion upheld the reasonableness of the rates previously fixed by the Secretary. Copies of the report were sent to the lessees, together with an invitation to the latter to submit any data they wished to have considered prior to the Secretary’s ruling on their appeals. On November 30, 1932, the Secretary filed his decision on the appeals. Referring again to his opinion that the royalty controversy should be settled by judicial action, and stating that “the appellants have also indicated an intention to litigate these issues,” he advised that “this decision will be limited to findings of law and fact.” He then ruled that under the Act, the regulations, and the leases, the Secretary was authorized to fix minimum valuations for the computation of oil, gas and gasoline royalties and that “if [the values as fixed] are not reasonable a detailed examination of expert witnesses and of [the lessees’] books and operations * * * will be required to establish better ones. A judicial, and not an administrative, forum is required for such an issue. Accordingly, on the evidence before it, the Department does not feel warranted to disapprove the recommendations of the Geological Survey as to the reasonableness of the schedules now in force, and holds that they are reasonable. The appeals are severally denied. * * * In default of payment within 30 days * * * of all royalty accrued, the Department of Justice will be requested to institute suit for their collection. The Department does not deem it necessary to ask cancellation of the leases * * *. Both the Government and the lessees will benefit * * * by having these questions set at rest by judicial proceedings.” It is apparent from the record before the court that as a result of the Washington conference and the subsequent ruling of the Secretary upon the appeals, the parties to the leases expected litigation of the matters in controversy. The present suit was not brought until July 10, 1939. In the meantime the lessees continued, as they had before, to pay their royalties on the prices prevailing in the field (except for the three aforementioned lessees who paid under protest the full amount required by the Secretary). As before, the supervisor billed them for the deficiency, and they (excepting General) took appeals from such billings. It was not until August 4, 1938, that a formal ruling on these later appeals was announced, and then the lessees were advised that “The decision of November 30, 1932, has not been reversed or modified and is therefore controlling. The * * * appeals are denied. Any further appeals will be considered as denied in so far as they raise no new factual controversy.” On June 7, 1937, the Secretary issued the last of the orders which is in dispute between the government and its lessees. This order pertained to the method of computing royalties on natural gas and natural-gas gasoline and will be discussed later under “Net Realization.” Appeals from billings of the supervisor under this order were denied by the Secretary on July 7, 1938, the latter stating that “all future appeals from monthly billings will be considered as denied in so far as they raise no new factual controversy.” As outlined in the pre-trial order of this court of June 25, 1942, the issues before the court are the following; (1) did the Secretary of the Interior have power to determine the value of oil, natural gas and natural-gas gasoline, or any of them, for royalty purposes; (2) if he had such power, were all or any of the orders, directions or determinations involved herein valid exercises of such power; (3) if he did not have such power, what were the reasonable values of such commodities. In resolving the foregoing issues it must be remembered that the government’s role is taken to be no different from that of any private lessor or proprietor, for while the Kettleman Hills lands involved are public mineral lands, and as such until their disposition are under the supervision and control of Congress, the government as to such lands acts in a proprietary capacity, and treats with them in the same way as does the private landowner. Regardless of the type of lease Congress might authorize, a lease executed in accordance with what it has authorized becomes a private, contractual matter and is to be interpreted according to the general rules of law respecting contracts between individuals. And regardless of what Congress has authorized, unless the authorized provision is mandatory, it may not be “read in” if the Secretary omitted to include it. In considering the issues now before the court the royalty requirements as to oil will be separately considered from those pertaining to gas and gasoline. Oil Royalties The leases call for a royalty of 5% of the value of the oil produced. This provision complies with the terms of the Mineral Leasing Act. The word “value” as thus used is not defined in the Act or the leases. It will be presumed, therefore, that Congress intended the natural import of such word of common usage. “Value”, in common usage, means “reasonable market value”; that price which a product will bring in an open market, between a willing seller and a willing buyer. The parties do not dispute this interpretation of the term. Thus the lessees are obligated to return to the government the specified percentage of the reasonable market value at Kettleman Hills of the oil produced. After his investigation of the facts and circumstances, the Secretary determined that the market price of oil at Kettleman Hills did not represent the reasonable market value of such oil. By his order of June 4, 1931, he rejected such market price as the basis of royalty computations and sought to fix the market value on the basis of the highest price posted in California for oil of equal gravity. The right so to fix the value of oil the Secretary claimed under section 2-c-3 and section 2-d of the leases. Section 2-c-3 of the leases, as herein-before quoted, provided that the value in the field where produced of gas and gasoline for royalty purposes, unless such gas or gasoline was disposed of under an approved sales contract or other method as provided in section 2-d, should be fixed by the Secretary. In terms this section deals exclusively with gas and gasoline. Oil is not mentioned in this section. Section 2-d required the lessees to file with the Secretary copies of all contracts for the disposition of oil and gas, and in the event the United States elected to take its royalties in money, the lessees agreed not to dispose of their products except in accordance with a contract first approved by the Secretary. While oil is in terms included in this section, the only power reserved to the Secretary under it relating to oil is the power to disapprove contracts of sale of such oil and to prevent disposition of the oil under such contracts. It is not a power reserved to fix the value of that oil. Plaintiff seeks to read into section 2-c-3 the right to fix the value of oil. In the court’s opinion 2-c-3 may not be so construed. Not only is there no express inclusion in 2-c-3 of oil but its inclusion is not implied. When the Secretary desired to reserve the right to fix the value of gas and gasoline he did so expressly. If it was necessary to make that express statement as to gas and gasoline, it was as necessary to make that statement as to oil, if the power to fix the value thereof was to be reserved to him. Plaintiff contends that section 2-d supports the claimed power. It is to be noted, however, that section 2-d is not the basis of the value-fixing right as to gas and gasoline; such right, as heretofore observed, is reserved expressly in an independent, separate section, 2-c-3. It does not appear to the court that the right to disapprove the oil-disposal contracts (2-d) gives an implied right to fix the value of the oil. Plaintiff argues that since oil is much more important as a product than gas or gasoline there is no reason the Secretary should have reserved a right to protect the government’s royalty interests as to gas and gasoline and at the same time have omitted to reserve that right as to oil. The court is not concerned with the reason for the omission. It here seeks only to ascertain whether the right to fix the value of oil was in fact a power reserved to the Secretary under the leases. The Secretary •was not left without recourse when, in his opinion, the prevailing market price of oil did not reflect its true or reasonable market value. He could disapprove the sale of oil at such prices and prevent the establishment of those prices as an apparent basis of royalty value-determination. This power of contract disapproval under 2-d was1 expressly upheld in Wilbur v. Texas Co., 59 App.D.C. 275, 40 F.2d 787, certiorari denied 282 U.S. 843, 51 S.Ct. 24, 75 L.Ed. 748. He chose, instead, to withhold a formal ruling on those contracts until 1938, and to assert an independent right to fix the value. Plaintiff contends also that the right to fix the value of oil was reserved by an amendment to section 1-h of the 1926 regulations adopted in January, 1931. By section 1-h of the 1926 regulations, it will be recalled, the Secretary directed the supervisor to compute and report the value of accrued royalties on oil and gas. By the amendment of January, 1931, the supervisor was directed to determine the value of such royalties. The power to “determine” the value of royalties, plaintiff says, gave the right here asserted. It is, to say the least, questionable whether the lessees are bound by this amendment which came long after many of the leases were executed. Without discussing that question, it is apparent to the court that the amendment, even if binding on the lessees, has not the force which the plaintiff would assign to it. Section 1-h as originally promulgated was mainly of departmental concern between the Secretary and his supervisor. Section 1-h as amended has no greater significance so far as the lessees are concerned. Even if it may be said that the change in terminology from “compute” to “determine” changes the responsibility of the supervisor, it still regulates his duties as agent of the Secretary. It does not affect the obligations of the lessees nor the authority of the Secretary over them. If the parties had intended that it should affect the contracts so that it gave the Secretary the right to fix the value of oil — admittedly an extreme power, — it seems reasonable to conclude that they would in terms have included it in the leases or that they would have made the implication clear and positive. Neither was done. The amendment to section 1-h cannot be interpreted so as to accomplish the drastic change for which the plaintiff contends. The court concludes that the authority claimed by the Secretary of the Interior over oil-royalty valuations, although honestly asserted by him, was not properly asserted over the defendant lessees. The court therefore answers the question contained in issue one of the pre-trial order as regards oil, in the negative. There is then left for the court issue three of such pretrial order, that is, what was the reasonable value of oil for the period in question? Before the court may consider the question last stated, it must, in view of the contentions of the parties, determine whether or not the posted prices truly reflect reasonable market value. If they do, then defendants have properly accounted for plaintiff’s oil royalties. Plaintiff contends vigorously that they do not, and asserts and assumes the burden of proving that there was absent in the period in question a competitive, open market for crude oil at Kettleman Hills. The Market at Kettleman Hills When oil was discovered in Kettleman Hills it was the kind known as light oil; it was generally designated as “white” oil, and was of a very high gravity. Within the period of its production this white oil has varied from 55 to 64 degrees of gravity. The volume of its production was small compared with the “black” oil, which was first obtained at Kettleman in 1930. The black oil’s gravity range was from 33 to 40 gravity. From July 1, 1931, to July 1, 1939, the integrated defendants, by reason of ownership of the properties or by means of operating rights, directly controlled the disposition of more than sixty per cent of the Kettleman Hills production. Through subsidiary or affiliated companies and through contractual arrangements, they have at various times within the period controlled additional portions of the remainder of the field’s output. The General Petroleum Corporation, a subsidiary of Socony-Vacuum Corporation, had purchased from Coast Land Company the oil production from 2460 acres of Kettleman Hills land. This right on the part of General was to continue during the life of production. It owned 340 acres, and had government leases for 2160 acres, thus giving it a control of 4960 acres. Standard Oil Company of California had 200 acres of government land under lease and owned 9460 acres. Thus these two integrated companies, General Petroleum and Standard, controlled 14,620 acres out of the field’s estimated 21,200 acres of productive oil land. There are six pipe lines in Kettleman Hills used for transporting oil from the field to the refineries. Since July 1,1931, each of the integrated defendants, General, Standard, Shell, Associated and Union, has owned and operated such a line. The Valley Pipeline Company built a line from Kettleman Hills and has operated it since August 12, 1936. Seaboard and Texas each own one-half of the stock of the Valley Pipeline Company. With one exception — to Estero Bay— there -has been no pipe line rate filed for the transportation of oil from Kettleman Hills. Estero Bay is practically inaccessible to most of the independent refiners of California. Although designated as common carriers, none of the pipe lines actually has ever operated as such. And it may be added that the evidence does not disclose that anyone has ever demanded the right so to use such pipe lines. It should be kept in mind that at all times since the discovery of oil at Kettleman Hills the integrated defendants (with two exceptions) operating in the field have been buyers — not sellers — of crude oil. Standard, General, Union and Associated posted in the field, prices at which they would be willing to buy oil. Their purchases of crude oil were made on the basis of such prices. Shell, while not posting prices, purchased oil at the same prices paid by the others, that is, at the posted prices established by the other integrated defendants. The plaintiff calls to the attention of the court the action in 1928 of Standard Oil Company of California and General Petroleum Corporation with regard to the price to be paid for the oil produced from the Coast Land Company properties. It argues that this action is indicative of a controlled and not an open market. The price at which General purchased the oil of the Coast Land Company was specified in its contract as that posted by the Standard Oil Company of California for oil of like character and gravity. Marland Oil Company (subsequently Continental) and Milham Exploration Company (subsequently Seaboard) became the successors of Coast Land Company. In October of 1928 a well producing 55 gravity oil was “brought in” by Milham. This oil was subject to the General-Coast Land contract. At the time this well was placed in production the Standard had posted no price for such high-gravity oil. On November 8, 1928, General advised Marland in writing that it had established a price of $1.65 a barrel, stating that “this price structure has been arrived at by stepping up the Coalinga price 4^ for each degree of gravity, with a maximum of $1.65 * * * (or in other words) with the price of 44 gravity oil as the maximum.” Marland and Milham refused to accept this as a proper basis of payment. After this refusal, on December 15, 1928, General sold to Standard for one year all oil of 55 gravity, or higher, which General had contracted to buy from Marland at Kettleman, being the oil hereinbefore mentioned. The price agreed upon was designated as that currently offered by Standard to other producers, for like oil (although at that time Standard had not posted prices covering this gravity), that price being stated as $1.65 per barrel. On January 18, 1929, Standard posted a price for 55 (and over) gravity oil of $1.65 at Kettleman Hills. Marland and Milham thereafter accepted the $1.65 price for their oil. General delivered this oil to Standard, and it was transported from Kettleman Hills field by General’s newly-completed pipe line, then under lease to Standard. During this period (1928 and the early part of 1929) General and Standard were the only purchasing companies in the Kettleman Hills field. It may be noted that the attempted establishment of a price by General to cover the Coast Land Company contract was apparently one of unilateral decision. It was what General offered to pay on an increase of the price paid for oil from the Coalinga field, but not for oil of a higher gravity than 44 degrees. In other words, it stopped the “stepping up” process and of its own accord crystallized the price at that which it would pay for 44 gravity oil, although the oil which it would take was at least eleven degrees higher gravity. While the Standard-General contract of purchase provided that the $1.65 price might be changed, it does not appear that it was changed. Thus the price which General had attempted to establish by its own action, as above indicated, was the same as the price posted by Standard for the year, the term of the General-Standard contract. Such price ($1.65) continued until sometime in the earlier part of the year 1931. (The price posted for 42 gravity oil in another California field within this period was as high as $2.20 a barrel.) After two years or more of operation under the Coast Land contract, such contract was canceled as to the Milham properties. As to the Mar-land properties it was also canceled, after Marland’s successor, Continental, had contracted to sell its oil production from the Marland properties for three years to General at General’s posted prices. Under such contract General was not required to accept deliveries of more than 450,000 barrels of oil in any one month or more than 20,000 barrels in any one day, but could accept a greater amount at its option. The plaintiff-lessor did not accept the $1.65 price for its high-gravity oil from the foregoing property. It took its share of the oil for the year of April 1, 1929, to April 1, 1930, in kind and sold it to the Phillips Petroleum Company for $2.25 per barrel, a portion bringing $2.54 per barrel. Later this was purchased by Standard at a still higher figure. Plaintiff’s oil so sold amounted approximately to 36,500 barrels for the year. The plaintiff particularly stresses the fact that throughout the period in question (July 1, 1931, to July 1, 1939), with the exception of a period of five days (October 26 — November 1, 1935), the prices posted in Kettleman Hills field by the various price-posting companies have been identical. Uniformity of price may be the result of competition. On the other hand it may result from lack of competition. In any event it may be considered with other evidence in determining whether the prices prevailing in a market reflected true market value or whether they were artificial and not the result of supply and demand. Each case must be judged on its own facts. The Secretary of the Interior in his order of June 4, 1931, relating to payment for the lessor’s share of the oil from the leased property, designated gravity as the basis for the determination of the prices for crude oil, and the plaintiff now contends that gravity is proper for the ascertainment of value. The defendants reply that this is the wrong criterion to employ; that it is unfair to them to do so, as Kettleman Hills oil of a given gravity is not as valuable as that of oil of the same gravity in some other fields in California. Extended argument has been made by the various parties upon this point. A great deal appears in the briefs as to the constituents of crude oil and their importance in determining the value of the oil. From the evidence it appears that gravity alone is not always sufficient for ascertainment of value. While it may be true that the criterion of gravity is satisfactory for such purpose in the same field, it seldom appears that such is the case between different fields in California. As contended for by defendants, oil of a given gravity may be lower in “quality” content in one field than in another and as a result not be so valuable as that of a lower gravity in another field. Such is the testimony of William L. Stewart, vice president of Union. It clearly appears from certain computations introduced into evidence in connection with the testimony by deposition of William G. McCammon, an employee of Standard of California, that value does not necessarily depend upon gravity. The following data as to gravities and valuations demqnstrate this: The chief features of crude oil are its gasoline quality and fuel-oil quality, according to the testimony of an official of one of the integrated defendants. “End point”, as explained by McCammon, is the point where complete distillation occurs. The percentage of end-point stock present appears to be of major importance in determining quality and value of the higher-gravity crude oils. The residuum is likewise a factor, but less important. The computations hereinbefore mentioned were made by the employees of Standard concerning valuations of oil in various California fields. These appear as exhibits (Plaintiff’s 63-a to 63-1). Reference will be made to parts thereof. The court has selected for such reference oils which are substantially the same in percentage of endpoint stock and residuum. They are as follows: It is to be observed from the foregoing table that these oils of different degrees of gravity, but of substantially the same endpoint content, have a “total value” rating which is comparable. They do not, however, have the same net value. The difference in these “value” items is accounted for by the difference in transportation costs. This transportation differential will also account for the quotation of a ten-cent lower posted price at Midway-Sunset than at Santa Fe Springs. It costs more to carry the oil from Midway-Sunset to the refinery than it does to convey it from Santa Fe Springs to the refinery. This difference in transportation does not, however, account for the posting of a price of 79 cents at Midway-Sunset and 72 cents at Kettleman Hills, where the manufacturing and transportation costs are the same in each field, it being noted Ihat the net of the former is 79 cents while that of the latter is 80 cents per barrel. A further observation of this schedule will show that the “net value” at Santa Fe Springs and Midway-Sunset becomes in round numbers the posted price. This practice of converting net value into posted prices is shown by the computations to have prevailed generally in the fields in the Los Angeles Basin. (There are some instances in which this did not occur, but it is substantially true for the years 1931-1935.) It is important to note, however, that the substantial translation of the net value of the oil at the well into posted prices is not made in the Kettleman Hills field. There the posted price is eight cents below the net computed at the well. Such decrease is without satisfactory explanation either in the deposition or in any other part of the evidence. This is an apparent discrimination against Kettleman Hills oil. As illustrative of such discrimination, reference is made to the figures appearing on exhibit 63-j under the headings “Net Cornputed at the Well” and “Posted at the Well”, for all gravities of oil for which prices were posted. They are as follows: On June 26, 1933, the schedule of prices shows that there was a substantial increase in posted prices throughout the California fields. Likewise there was a corresponding increase in “total value” and of the net computed at the well in the three fields last mentioned (Santa Fe Springs, Midway-Sunset, and Kettleman Hills), the cost of manufacturing and transportation remaining the same as that of March 5, 1933 (Table B). Such figures are shown as follows: It is to be observed that with a net value of $1.051 at the well at Santa Fe Springs the posted price is $1.05; at Midway-Sunset the net value is 94.5 cents and the posted price 95 cents, while at Kettleman Hills, with a net of 95.9 cents the posted price is 82 cents. A further example of the failure to follow the general practice of translating the net prices computed at the well into the prices posted at the well in the Kettle-man field is shown in the last-mentioned schedule by the following: One of the defendants has said that oil does not go to market, but that the market comes to the oil. If this was true during the time the last-mentioned schedule was in effect, then the market came to the wells in Kettleman Hills, found oil which had already been charged with transportation costs to a refinery and had a net value computed at the well. Instead of buying it at such net figure — which appeared to be the general practice in what the defendants claimed were “open” markets in the Los Angeles area — it absorbed all the Kettle-man crude at a substantially lower price than the net value so computed. Plaintiff particularly calls to the attention of the court the prices in effect from June 19, 1931, to January 1, 1932. The McCammon deposition does not cover this period as to Kettleman Hills production, but other information in the record will serve as a basis for certain conclusions relative to comparative valuations. The Standard computations show generally that 30 degree gravity oil at Midway-Sunset is comparable in valuation to Kettle-man Hills thirty-six degree gravity, and that the transportation and manufacturing costs were the same in the two fields. Under the schedule of prices for June 19, 1931 — January 1, 1932 (exh. 63-1) the price posted at Midway-Sunset for 30 gravity oil was 76 cents. The Kettleman Hills posted price for all oil, some being as high as 64 gravity, during such period was 66 cents per barrel. The field produced more than 900,000 barrels of 40-gravity oil from June 19, 1931, to January 1, 1932. Inferentially it may be said that the price for the 40 gravity oil consistently should have been somewhat higher than 76 cents per barrel. The court in the foregoing analyses has used the Midway-Sunset field as a basis of comparison with the Kettleman Hills field. It is of the opinion that the propriety of such comparison is supported by the evidence. “Midway-Sunset” contains not only the oil-producing Midway-Sunset field, but as well the oil fields of Elk Hills and Buena Vista Hills. Both Kettleman Hills and Midway-Sunset are within the San Joaquin Valley, one of the large California valleys; they are approximately 60 miles apart, and generally have the same physical characteristics; the oil produced from each -field was transported by pipe lines, or by pipe lines and sea-going tankers, to the same areas for refining. The refining centers were at San Francisco Bay and in the Los Angeles Basin. The costs of manufacturing and transportation shown on the price schedules considered in the analyses were identical. Was Midway-Sunset an open market? Assuredly the integrated defendants cannot say that it was not. They posted prices at which they would be willing to purchase oil produced there, and the oil they bought was acquired at such prices. From a study of the computations in the schedules used hereinbefore, it appears that the prices for comparable oils (end point stock and residuum) were substantially the same at Midway-Sunset as in fields in the Los Angeles Basin, after the deduction of the difference in transportation costs. The court has already referred to the figures for 35 gravity oil from Santa Fe Springs, and 30 gravity oil produced at Midway-Sunset, appearing on the “price schedule” for March 5, 1933. The cost of manufacturing and transportation was ten cents lower at Santa Fe Springs than at Midway-Sunset, and the price posted was accordingly ten cents higher at Santa Fe Springs than at Midway-Sunset. This transportation and posted-price differential was generally reflected in the schedules for 1931 and 1932, e. g., on the schedule of June 19, 1931, for 35 gravity Santa Fe Springs oil and 30 gravity Midway-Sunset oil, with comparable end-point and residuum contents, there was a difference of 10.2 cents in the item of “manufacturing and transportation”, and 11 cents difference in posted prices. On the last-mentioned schedule are given the figures for 27 gravity oil at Signal Hills, 26 gravity at Huntington Beach, 30 gravity at Santa Fe Springs and 25 gravity at Midway-Sunset. All have substantially the same end-point and residuum contents and “total value.” Manufacturing and transportation costs for Signal Hill, Huntington Beach and Santa Fe Springs are substantially the same, and these costs are ten cents lower than such costs at Midway-Sunset. The posted prices at the first three are the same, and they are accordingly ten cents higher than at Midway-Sunset. From the foregoing it seems clear that there was no substantial difference in the treatment of the comparable oils in the Los Angeles area and those at Midway-Sunset, with reference to valuation. While plaintiff does not concede in terms that the Los Angeles area constituted a competitive, • open market, it admits that it was as nearly so as could be found in California. The court is of the opinion then that for all practical purposes it is reasonable to conclude that consideration may be given to comparable oils at Midway-Sunset and Kettleman Hills in order to determine whether the posted prices at the latter represented true market value in •a competitive, open market. In reaching the conclusion, which it is quite obvious at this point the court has reached, that there was a discrimination against Kettleman Hills in posting prices for crude oil when compared with prices at Midway-Sunset, it is not necessary for the court to rely entirely upon the computations referred to, or upon the deposition of Mc-Cammon. Other evidence indicates this, but not as definitely as the computations. It may .be remembered that W. C. Mendenhall, who, at the request of the Secretary of the Interior, reported on the conditions prevailing at Kettleman Hills in 1931, though not having the benefit of all the data presented to the court herein, came to the same conclusion substantially as that of the court relative to the comparison of the prices of the two fields. He said in his report to the Secretary: “It is of interest to note that, as shown in this tabulation (table 6 of his report) that Kettleman Hills oil produced in the same general area as oil in other San Joaquin Valley fields is, on the basis of prices posted for 33 gravity, priced $0.10 a barrel lower than 30 degrees A.P.I. gravity oil produced in surrounding fields.” A reference to table 6 shows that “other San Joaquin Valley fields” included the Midway-Sunset group of oil fields. To summarize: when the court considers' that the integrated defendants posted prices at which they would buy oil at Kettleman, or appeared from the evidence to be governed in their purchases by prices posted by other integrated defendants, which prices are identical, and that such prices, month after month for years, are substantially lower than those posted in a nearby field (Midway-Sunset) for comparable oil which is subject to the same costs of manufacturing and transportation, then it believes that the conclusion is inescapable that there was an artificial market at Kettleman Hills, and that this was to the detriment of sellers of crude oil in such market. Defendants have sought to minimize the effect of McCammon’s testimony. They claim, among other things, that he was unfamiliar with the subject matter of his deposition. Generally speaking, such claim is without merit (In fact the court was more impressed by the knowledge of McCammon and of Charles S. Wimpress, assistant to the vice president of Union, than it was by that of some others who testified upon the same subject.) After the trial had begun, plaintiff notified Standard that it desired to take the deposition of someone who could testify concerning the computations (heretofore referred to), which one of Standard’s attorneys had forwarded by letter to one of plaintiff’s attorneys. McCammon was designated by Standard for such purpose. The letter is as follows: “December 29, 1941. “Mr. F. B. Critchlow, “Special Assistant to the Attorney General, “Federal Building, “Los Angeles, California. “Dear Mr. Critchlow: “Pursuant to our verbal understanding in connection with the proposed depositions of Mr. H. D. Collier, Mr. A. S. Russell and Mr. B. W. Letcher, I am sending you herewith compilations with reference to crude oil and- natural gasoline prices of Standard Oil Company of California prepared along the line of that furnished to you by Union Oil Company. “As Mr. Felix T. Smith has told you, Standard’s field prices were determined by its executives in light of a variety of different factors not susceptible of expression or use as formulae or bases. The computations reflected in the enclosed were made by employees of the company and submitted to said executives im advance of the determination of such prices. However, since such determination was, in the last analysis, always the result of the exercise of the judgment of said executives, the computations so submitted to them were deemed but suggestions which the executives were free to adopt, modify, or reject in the light of all other considerations entering into the exercise of their judgment. In furnishing the-enclosed information, therefore, Standard. Oil Company of California would like you; to understand that it does not represent or concede that such information, in fact, sets, out formulae or bases on which its field, prices were determined, or that the same is-responsive to paragraphs 3 or 14 of the order for production and inspection, or that the enclosed or the information therein contained is admissible in evidence for any purpose, and that it reserves the right to. object to the admissibility thereof. “Respectfully yours, “Max Felix.” (Emphasis added.) The court" refers particularly to the foregoing for the reason that it has largely used" the computations for the purpose of making-its valuation comparisons. While the Standard executives did not have the actual sheets which were received as exhibits, evidently they did have the computations contained thereon. The fact that these figures were submitted to the executives before determination of posted prices, does not depend upon McCammon’s testimony ; nor is the fact that these executives, had the computations before them (even., though they were deemed suggestions only). in exercising their judgment in determining jwstcd prices, contingent upon his evidence. These facts are clear from the letter, which was written many months before McCammon gave his deposition. No reservation or objection militates against the effect of the emphasized sentence in the above-mentioned letter, either when considered alone or with the context. The letter was, moreover, marked as an exhibit for identification at Standard’s request at the taking of the deposition, and in the course of the trial was read into the record. It seems fair to conclude that the Standard executives, year after year, would not have considered such computations, even as suggestions, if they were inaccurate. And it is not reasonable to believe that the executives of other integrated defendants who followed the Standard’s prices would pay out millions of dollars for oil purchased by their companies, if they did not know of, or believe in, the accuracy of Standard’s conclusions. At least it may be inferred that they believed that their companies, as buyers, were fully protected by the Standard’s figures. These defendants possessed, or could obtain, all data through their own research which were in the possession of Standard. It may be added, also, that whatever action was taken by Standard’s executives in adopting, modifying, or rejecting the suggestions contained in the computations, the result was that the posted prices as shown by other evidence, were the same as those set out in the computations. McCammon testified that crude oil under the Standard method of computation was divided into two parts, end-point percentage and residuum. Some argument is made that this is not the same as that of Union and General, which employ a three-product method, i. e., a further division of the residuum into a fuel oil and gas oil. It would seem that this is not important as far as it relates to final valuations. Whatever calculations were made by the companies other than Standard, the results were the same as Standard’s. They all ended with the same posted prices. Mr. Dickey, president of General Petroleum, said: “ * * * as I told you before, in every case that I was conversant with the procedure was that we followed the price schedules as posted by principal purchasers of crude in California, and that I had no knowledge of any instance when we deviated from that.” And later: “I know of no schedules that I have been instrumental in looking over that have been prepared otherwise than following the price schedule as set by some other principal purchasers.” Mr. Dickey stated that in some instances the General followed Standard and in others, Union. C. S. Wimpress, assistant to vice-president Stewart of the Union Oil Company, was examined as to the basis of certain of Union’s schedules of posted prices at Kettle-man Hills. In part his testimony was as follows: “Q. [What was the basis of Union’s schedule of] June 20, 1931 ? A. That was based on Standard’s schedule of June 19, 1931. “Q. May 17,1932? A. Which schedule is that? “Q. I think it applies merely to Coalinga. A. That is outside this, isn’t it. Isn’t that Coalinga heavy? “Q. It applies just to Coalinga? A. Heavy? “Q. Well, you look at it. A. Oh, no. That is right. I think Union initiated that schedule. “Q. Has your company any data showing the factors used as a basis upon which that schedule was prepared? A. No. “Q. June 26, 1932? A. That is Standard’s schedule of June 25, 1932. “Q. March 5, 1933? A. That is Standard’s schedule of March 5, 1933. “Q. June 26, 1933? A. Standard’s schedule of June 26, 1933. “Q. September 6, 1933? A. That is Standard’s schedule of September 6, 1933. “Q. August 30, 1935? A. Standard’s schedule of August 29, 1935.” In reaching its conclusion hereinafter to be noted, the court is not unmindful of the very vigorous argument of defendants that all of the non-integrated defendants sold their oil at the prices posted by the integrated companies; that they accepted such prices without taking advantage of the provisions of section 3(c) of the leases regarding their right to use the pipe line facilities; and that this is conclusive evidence that the posted prices represented reasonable market value or else the non-integrated defendants would have used the pipe lines to transport their oil to other markets. The court also has in mind the reply of plaintiff to such argument, and in particular the assertion that the larger portion of the “non-integrated” production actually was not sold to the integrated defendants; also that the non-integrated defendants would have to sacrifice certain gravity advantages if there was a mixture of oils in pipe line transportation. In considering the force of the last-mentioned argument of defendants, it is well to advert to the relationship existing between certain defendants. It has been mentioned herein that there was a contract between Continental and General whereby the former sold to the latter certain quantities of oil to be produced from the former Marland property, beginning April 1, 1931, for a period of three years. Thus this oil was not free from the terms of such contract until the end of March, 1934, and until that time its control resided in General and not Continental. Likewise, Pacific Western’s production was subject to disposition as designated by Kettleman Oil Corporation from March 9, 1929, until 1935 (exh. 205, contract of March 9, 1929), and one-half of the capital stock of such latter corporation was then owned by Standard and one-half by Honolulu. By contract of October 1, 1931, Belmont transferred to Union an undivided one-half interest in a lease it controlled, Union assuming certain obligations of Belmont. Union thereby was entitled to receive all oil allocated in kind by Kenda to the lands covered by the agreement, with right to sell the same at the current market price. It is obvious that Union would consider its own posted price as the proper market price. One-half of the capital stock of Kettle-man Inglewood was owned by Standard, and one-half by Honolulu for a portion of the period in question. Standard of Texas is a wholly-owned subsidiary of Standard of California. Further opposing the integrated defendants’ insistence that the fact that the non-integrated defendants did not ship their oil by pipe line is conclusive evidence of an open market, it may be noted that the Secretary of the Interior, whose duty it was1— and one especially imposed upon him by the act in question — to protect the interests of the United States, concluded that the market at Kettleman Hills was not an open market, but was controlled by the integrated defendants, and that as a result the United States was not being paid a price representing true value; that this belief caused him to make the order of June 4, 1931. The Secretary had before him in reaching such conclusion much information presented not only by his own department, but by certain defendants as well. He knew of the Coast Land — General contract and the facts connected therewith heretofore adverted to. He also had, at a later time, the Mendenhall report. Mendenhall, while of the view that the Secretary’s order of June 4, 1931, did not attach sufficient importance to the question of transportation costs, was outspoken in his belief that there was no open market at Kettleman Hills. In the course of the trial and in the briefs, various references were made regarding the holding of the Supreme Court in Maple Flooring Ass’n v. United States, 268 U.S. 563, 45 S.Ct. 578, 69 L.Ed. 1093, and the companion case of Cement Mfrs’ Ass’n v. United States, 268 U.S. 588, 45 S. Ct. 586, 69 L.Ed. 1104. Without attempting to analyze these cases, attention may be called to the very pertinent statement which appeared near the end of the opinion (268 U.S. page 606, 45 S.Ct. 592) in the Cement case. It is as follows: “We realize also that uniformity of price may be the result of agreement .or understanding, and that an artificial price level not related to the supply and demand of a given commodity may be evidence from which such agreement or understanding or some concerted action of sellers operating to restrain commerce may be inferred/3 (Emphasis added.) Months of trial were consumed in presenting evidence upon the single issue of whether or not there was an open market for oil at Kettleman Hills. Necessarily the court cannot well recount herein any considerable portion of such evidence. It would be inadvisable to attempt to do so in this already-long opinion. The evidence as a whole of facts occurring after July 1, 1931, to the court’s mind is clear and convincing that the crude-oil market at Kettleman Hills for the years 1931 (after July 1st), 1932, 1933, 1934, and to August 29, 1935, was not an open market. For the remainder of the period under consideration, that is, from August 29, 1935, to July 1, 1939, it appears that the disparity between the prices posted for comparable oils in Kettleman Hills and other California fields largely disappeared. The posted prices after said date came into line with the net-computed-at-the-well valuation of crude oil. Hence in such later period the lessees properly accounted for their crude-oil royalties, and plaintiff is not entitled to recover therefor after August 29, 1935. Gas and Gasoline The lease contracts, as hereinbefore indicated, by section 2-c-3 expressly reserved to the Secretary the power to fix the value of gas and gasoline for royalty purposes when those products are not disposed of under approved contracts. Thus, the lessees are bound by the Secretary’s determination of values of gas and gasoline if the Mineral Leasing Act expressly or impliedly authorized the Secretary to include such section in the leases, and if he validly exercised such reserved power by his orders of June 4, 1931, June 23, 1931, and June 7, 1937. As to gas and gasoline, the lessees argue chiefly that the Mineral Leasing Act contains no express provision authorizing the Secretary to fix the value of royalty products; that such power may not be implied since the power claimed by the Secretary is a “price-fixing” power and would render the Act a price-fixing statute. They urge, then, that price-fixing statutes when delegating authority to administrator or board, to be constitutional, must contain definite standards to control the exercise of the delegated authority. Such standard, they say, is lacking here. Finally, they contend that since courts will never so construe a statute as to render it unconstitutional, if they are not compelled to do so, the court will not, in the instant case, read into the Mineral Leasing Act any such implied power. The authorities which the defendants cite upon the question of requisite standards in statutes are those involving action by the government in its sovereign capacity, that is, where it reaches out to deal with, direct, or regulate the conduct of the citizen; in some instances against the will of the citizen, and often in interference with the citizen’s own property or contract rights. Such are the cases of United States v. Rock Royal Co-operative, Inc., 307 U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446; Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 60 S.Ct. 907, 84 L.Ed. 1263; Opp Cotton Mills v. Administrator, 312 U.S. 126, 61 S.Ct. 524, 85 L.Ed. 624; United States v. Grimaud, 220 U.S. 506, 31 S.Ct. 480, 55 L. Ed. 563; Morgan v. United States, 298 U.S. 468, 56 S.Ct. 906, 80 L.Ed. 1288; United States v. Cohen Grocery Co., 255 U.S. 81, 41 S.Ct. 298, 65 L.Ed. 516, 14 A.L.R. 1045; Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S.Ct. 241, 79 L.Ed. 446. There the law requires strict boundaries to be erected by the statute around the exercise of power by official or board to whom is surrendered so much of the Congressional power as i< necessary to fill in the details of the statute enacted. The power assigned to such official or board is administrative in character, not legislative. The safeguards are indispensable lest the administrative officer or board presume upon the Congressional prerogatives to the injury of the citizen. The instant case is, however, not such a case. It involves the construction of a statute which neither purports to direct and r