hgs bulletin volume 13 no.4 (december 1970)geo science notes., '. ' james g. word, jock...

BULLETIN

HOUSTON GEOLOGICAL SOCIETY

Houston, Texas

Volume 13, No. 4 D-fnbu, 1970

HOUSTON GEOLOGICAL SOCIETY

1970-1 971 OFFICERS

President . . . . . . . . . . . . . . . . . . . . Robert L . Musslewhite . . . . . . . . . . . . 225-0881 1st Vice President . . . . . . . . . . . . . . . McInnis S . Newby . . . . . . . . . . . . . 224-5251 2nd Vice President . . . . . . . . . . . . . John J . Amoruso . . . . . . . . . . . . . . 228-5863 Secretary . . . . . . . . . . . . . . . . . . . . . . Charles L . Hicks . . . . . . . . . . . . . . . . . 621-9550 Treasurer . . . . . . . . . . . . . . . . . . . . . . Curtis W . Burgess, Jr . . . . . . . . . . . . . 224-8631

EXECUTIVE COMMITTEEMEN JamesC.Barker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224-9261 BenJ.Sorrel1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224-5111 Harold E . Voigt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224-51 11 Alvin R . Winzeler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227-4371 Fred M . Schall. Jr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222-9481

COMMITTEE CHAIRMEN Finance . . . . . . . . . . . . . . . . . . . . . . . Royce E . Schneider . . . . . . . . . . . . 224-511 1 Distribution & Publications . . . . . . Sabin W . Marshall . . . . . . . . . . . . . 227-6321 Awards & Loans . . . . . . . . . . . . . . James Ragsdale . . . . . . . . . . . . 748-1266 Research & Study . . . . . . . . . . . . . . Dick Hohlt . . . . . . . . . . . . . . . . . . . . 222-0081 HGS Membership . . . . . . . . . . . . . . John Read . . . . . . . . . . . . . . . . . . . . . . . 223-1130 Personnel Placement . . . . . . . . . C . R . Noll, Jr . . . . . . . . . . . . . . . . . . . 227-4371 Remembrance . . . . . . . . . . . . . . . . . Ed Lipp . . . . . . . . . . . . . . . . . . . . . . . . . 222-6285 Public Relations . . . . . . . . . . . . . . . David W . Rapp . . . . . . . . . . . . . . . . 223-0367 Entertainment . . . . . . . . . . . . . . . . . . R . W . Jackson, Jr . . . . . . . . . . . . . . . . 225-0881 A.A.P.G. Membership . . . . . . . . . . . R . C . Mason . . . . . . . . . . . . . . . . . . . . . 222-8153 Ballot . . . . . . . . . . . . . . . . . . . . . . . . . Irving I . Snider . . . . . . . . . . . . . . . . 228-0815 Advertising . . . . . . . . . . . . . . . . . . . . W . C . Hooper . . . . . . . . . . . . . . . . . . . . 225-2161 Exhibits G.C.A.G.S.

& A.A.P.G. . . . . . . . . . . . . . . . . . . . Reece L . Berry . . . . . . . . . . . . . . . . . . 664-3401 Transportation . . . . . . . . . . . . . . . . A . F . Christensen . . . . . . . . . . . . . . . . 748-2800 Library . . . . . . . . . . . . . . . . . . . . Arthur W . Ball . . . . . . . . . . . . . . . . . 228-3254 Boy Scouts . . . . . . . . . . . . . . . . . . . . . A1 H . Wadsworth, Jr . . . . . . . . . . . 227-8151

SPECIAL COMMITTEES Academic Liaison . . . . . . . . . . . . . . A1 C . Raasch . . . . . . . . . . . . . . . . . . . 221-3975 Oceanographic Liaison . . . . . . . . Harold Geis . . . . . . . . . . . . . . . . . . . . . . 225-1396 Advisor to Museum o f

. . . . Natural Science . . . . . . . . . . . . . Edd R . Turner. Jr . . . . . 228-9361 Special Publications for

Geology o f Deltas . . . . . . . . . . . . Martha Shirley Broussard . . . . . . 665-4428 A.A.P.G. Continuing

Education Co-ordinator . . . Dan J . Hartmann . . . . . . . . 227-4371

REPRESENTATIVES . . . . . . . G.C.A.G.S. Representative . . . . Kenneth R Johnson 228-8121

. . . . . . . . . . . . . . Alternate . . . . . . . . . . . . . . . . . . . Fred L . Smith 225-5757 A.A.P.G. Group Insurance . . . . . John Bremsteller . . . . . . . ~ . . . . . . 774-3188 General Chairman o f 1971

A.A.P.G. Convention . . . . . . . Edd R . Turner, Jr . . . . . . . . . . . . . 228-9361 Editor . . . . . . . . . . . . . . . . . . . Forrest J . Fiedler . . . . . . . . . . . . . 227-4371

THE BULLETIN

THE BULLETINOF THE HOUSTON GEOLOGICAL SOCIETY

Office-234 EspersonBldg.-Houston, Texas77002-CA 3-9309Subscrip~ionPrice $3.00 per year

THIS MONTH

Meeting Notice ... ......... .... .. Page 2

Newsof Members... . . . . . . . . . . . . . . . . . . . . . . . . ..

Committee Reports. . . . . . . . . . . . . . . . . . . . . . . . . . .. Page 4

News of Other Societi es .. Page 5

AIPG Committee Report:"Taxation of Overriding Royalty Interests" Page 13

I EDITOR - FORREST J. FIEDLER - 227-4371I

Associate Editors

In Memorium"""",' EdwardG. Lipp,CrownCentral "., 222-6285News of Societies,."., Craig C. Barclay, Pan Amerkon ." "", 227-4371Distaff Side Mrs. Hal H. (Sally) Bybee .. .. "'"'''''' 686-6494Geo Science Notes., '. ' James G. Word, Jock Colle Assoc. ."",.". 227-6266Special Features..., ". Edward H. ""inwoter, Tenneco,... ,. """'" 229-3142Items of Interest.."..., William G. Elliott , " 771-3861

Published monthly, September to June by

CARDINAL PRINTING AND LETTERSERVICE,INC.

VOLUME 13 NUMBER 4

MEETING NOTICE

There will be only one me e tin g during the month of De c em b e r due to theChristmas Holidays.

TIME: Monday, December 14, 1970Cocktai Is - 5:00 P. M.Dinner - 6:00 P.M.

PLACE: Houston Club, 10th FloorThe Houston Club Building

SPEAKER: Merrill J. Reynolds, A.A.P.G.Distinguished Lecturer.A. G. Oliphant-Ceja Corp., Tulsa,Oklahoma.

SUBJECT: "Omega of Hydrocarbons"

This paper is the second Distinguished Lecture to be presented to the Society fromthe 1970- 1971 AAPG Distinguished Lecture Series.

# # # # # # # # # # # # # # #

Omega of Hydrocarbons

by

Merri II J. Reynolds

ABSTRACT---------

Omega of Hydrocarbons is a history of the development of thought on the origin,environment, geochemistry, migration and accumu lation of hydrocarbons and documen-ted by thoughts of those who have made important contributions.

During the last twenty years the knowledge of the genesis of hydrocarbons hasgreatly improved. This knowledge, when completely integrated into our thinking, willenable us to become more sophisticated in our seach for new reserves of hydrocarbons.

2

Merri I I J. Reynolds

BIOGRAPHICAL DATA

Born: - July 5, 1924, Carrollton, Illinois

Academic Background: 1949 - A.B. Geology, Washington University, St. Louis, Missouri 1952 - M.A. Geology, Washington University, St. Louis, Missouri

Experience: 1948 Pennsy lvania Turnpike Commission; Harrisburg, Pennsylvania

1949 - 1950 ~ o c k ~ Mountain Geophysical Company; Casper, Wyoming 1950 - 1951 Baroid Well Logging Company; New Mexico, Texas, Louisiana

- ~

and Mississippi 1951 The California Company; Casper, Wyoming

1952 - 1956 Richmond kploration Company; Venezuela, South America 1956 - pres A. G. Oliphant - Ceja Corporation; Tulsa, Oklahoma

Memberships: American ksociation of Petroleum Geologists American lnsti tu te of Professional Geologists Tulsa Geological Society - President and Vice President Tulsa Geological Study Group - President AAPG Continuing Education Program - Chairman -

Publications and Papers: Co-author with Robert H. Dott, Sr., "Sourcebook for Petroleum Geology"

Published by the AAPG as its semicentennial commemorative volume Lectured on Geothermal Energy Exploration before seven geological societies,

the Rocky Mountain Sectional Meeting and Tulsa University.

N E W S OF MEMBERS

Tommy Burke has been appointed Vice President in charge of kploration and a Director of Van Dyke Oil Company. This appointment i s effective December Ist, and Tommy's new location wi l l be at 400 Sou t hw es t Towers, phone 228-8174. Tommy's previous position was Manager of the G eo l o g i c a l Department for Imperial American Management Company.

Fred L. Smith, Jr. advises that his new offices are located at 1014 Cb l Bldg, The phone number, 225-5757, remains the same.

1970 GCAGS AWARD

JOHN J. AMORUSO, Independent Geologist and Second Vice President of the Houston Geological Society has been judged winner of the first place award for the best paper presented at the 1970 GCAGS Convention in Shreveport. His paper, "Possible Future Petroleum Provinces of the Gulf Coast - Jurassic" also won the A. I. Levorsen Memori al Award.

COMMITTEE REPORTS

Continuing Education Committee

REPORT ON QUESTIONNAIRE

O f the approximate 1800 members canvassed by the questionnaire, only 220 cards

were returned. This represents 12 percent of the total m em b e r s h i p . The results are

assumed to r e f I e c t the neads of the society, and the p r o g r a m s w i l l be scheduled

accordingly. The t o p i c s are listed below in order o f most-to least-popular. (See

the October Bulletin for complete t i t le and authors).

Reference Subject

Carbonates - Subsurface stratigraphy and depositional environments.

Salt Dome Geology & Tectonics. Prospect Analysis and Evaluation o f Undrilled Acreage Exploring for Reef Carbonates

Exploration Techniques Abnormal Pressures - Undercompacted Shales

Recent Sediments - Depositional Environments Environmental Geology

Air Photos Petroleum Hydrogeology Major Fields Seminar

Elements of Geophysical bplorat ion

We wi l l try to schedule one o f the first four preferences shortly after January 1,

1971 and another i n the Spring. Those persons who indicated willingness to assist i n

making arrangements w i l l be contacted within the next few months, to determine the

area i n which they wish to work. As subjects and times are approved, the notices w i l l

appear in the bulletin.

The continued support o f employers i s requested, for only by your approval and

encouragement w i l l your employees take advantage of these opportunities to broaden

their exploratory background.

O f equal i m p o r t a n c e i s the participation o f the society's membership i n these

programs, for only i f you attend and s u p p o r t the courses, w i l l we be able to provide

this source o f Continuing Geological Education.

-- Dan Hartmann

Chairman

Transportation Committee

WORLD PETROLEUM CONGRESS - MOSCOW

June, 1971

I f you are at a l l interested i n traveling with the HGS's charter flight and have not contacted the Transportation Committee either by questionnaire or phone, please do so immediately. As o f November 9th we have 113 interested and as soon as we have 150 we w i l l firm up the travel plans and ask for deposits.

Cal l Arthur Christensen at 748-2800, extension 351 for further information.

-- Arthur F. Christensen, Chairman

N E W S O F OTHER SOCIETIES

GULF COAST SECTION OF S. E.P.M. - New Officers - The following are the newly elected officers o f the Gul f Coast Section o f the

Society o f Economic Paleontologists and Mineralogists (SEPM).

President: Jules Braunstein, Shell Oil Co., New Orleans, La. Vice President: Dougals E. Jones, University of Alabama, University, Ala. Secretary: Walter H. Trenchard, Phillips Petroleum Co., Lafayette,

Louisiana. Treasurer: Robert N. Davids; Humble Oil & Refining Company,

New Orleans, Louisiana.

REFRESHER COURSE IN PETROLEUM GEOLOGY

Since 1962, the University of Tulsa has ofFered a two-week refresher course in petroleum geology. Taught by a d i s t i n g u i s h e d panel o f leaders from academic and industry circles, this course has fu l f i l led a continuing need for evaluating and updating exploration technology. I t i s the only course of this type offered for e x p e r i e n c e d explorationists and provides a way for companies to keep their decision-makers at the top of their profession.

Every year substantial changes are made i n the program in order to keep abreast o f new developments. The course w i l l run from January 4th - 15th at the University o f Tulsa. For more i n f o r m a t i o n contact your b u I I e t i n editor or the Earth Sciences Department of the University o f Tulsa.

0. I.C. DISTRIBUTING EARTH SCIENCE BOOKLET

"Earth Science and Energy, a booklet designed to supplement standard texts i n Texas public schools growing earth science programs, i s being distributed by the Oil Information Committee.

I t i s authored by Dr. Robert E. Boyer o f the Department o f Geological Sciences at the University o f Texas and Richard B. Hale who teaches i n the Austin Independent Sc h o o I D i s t r i c t . The booklet i s the first i n the 20-year history of the Texas Mid- C o n t i n e n t p r o g r a m to be written by Texans. I t i s available without cost to Texas Educators.

LAFAYETTE GEOLOGICAL SOCIETY - Publications - The Lafayette G e o l o g i c a I Society has two new publications and several older

ones o f possible interest to society members. O f special interest i s "Typical Fields of Southwestern Louisiana, Volume 11". This publication c o n t a i n s detailed maps, cross s'ections and s t r a t i g r a p h i c displays for thirty fields scattered across the area. The choice o f fields covers a wide span o f trapping mechanisms.

Their 1970 Photo Directory i s also now available after much delay. I t too i s very well done and also includes the m em b e rs of the Sou t h w es t Louisiana Geophysical Society, Lafayette Asso c i a t i o n o f Petroleum Landmen and the Southwest Louisiana Oil Scouts Association. For i n f o r m a t i o n on al l publications and order forms, write Lafayette Geological Society, P. 0. Box 51896, Lafayette, Louisiana, 70501.

TEXAS A & M ACQUIRES ORCA

Texas A&M University has acquired its fourth vessel and second oceanographic research ship to operate i n the Gul f o f Mexico.

Dr. Richard A. Geyer, head o f A&M1s Oceanography Department, announced that the R / V ORCA, formerly owned by Scripps Institution o f O c e a n o g r a p h y , was acquired with an $88,000 grant from the Moody Foundation o f Galveston. The grant was given for purchase and instal lation of oceanographic instrumentation and labora- tory facilities.

Texas ABM also o p e r a t e s the R/V ALAMINOS, the Texas Maritime Academy training ship, the TEXAS CLIPPER and a water-quolity research vessel.

PROFESSIONAL DIRECTORY Space for Professional Cards of Members

JOSEPH L. ADLER Geologist & Geophysicist

1964 W. Gray Ave. 529-0120

Houston, Texas 77019

R. P. AKKERMAN Geologist EXPLORATION Engineer

Review of Subsurface Data

3425 Bradford Place 668-4321


HARRIS H. ALLEN Oil and Gas Consultant 609 San Jacinto Bldg.

228-9329 Houston, Texas 77002

JOY J. ANNELER Consulting Geophysicist

and Geologist 7054Hendon


A. I. BARTOW

Geophysical Consultant

2315 Watts Road

Phone: 668-3306

BELL & MURPHY AND ASSOCIATES Incorporated

Consulting Geophysicists DALLAS CORPUS CHRIST FT. WORTH DENVEF HOUSTON TAIWAP

--

JOHN L. BIBLE BIBLE GEOPHYSICAL CO., INC.

Gravity-Magnetic Surveys Interpretations

236 Esperson Bldg. 222-6266 Hnuston, Texas 77002

LESLIE BOWLING Oil and Gas Consultant

1417 National Bank of Commerce Bldg. 522-0432

New Orleans, Louisiana

ORVAL L. BRACE

Geologist

'206 1st National Life Bldg. 228-5404

Houston. Texas 77002

R. BREWER & CO.,

INCORPORATED

Consultants

C. D. CANTRELL, JR. Consulting Geologist & Engineer

508 C & I Bui lding Main & McKinney

Houston, Texas 77002 (713) 225-3754

GEORGE H. CLARK Petroleum Geologist

404 First City National Bank 223-1 187

Houston, Texas


- -

Geology a Paleontology a Valuations JACK COLLE & ASSOCIATES Consulting Geologists & Paleontolog~sts

817 C & I Building Houston, Texas 77002

Area Code (713) 227-6266 Jack Colle J. G. Ward Res.: 622.9555 Res.: 497-729E

MORGAN J. DAVIS ASSOCIATES Petroleunl Consultants and Geologists

1300 Main-Suite 709 Houston, Texas 77002

MORGAN J. DAVIS EDWARD D. PRESSLER 713-227-7209 713-222-2032

RALPH E. DAVIS ASSOCIATES, INC.

Consultants

Petroleum and Natural Gas

500 Jefferson Building-Suite 2031

Houston, Texas 77002 713-224-7576

DYNAMIC EXPLORATION CO. Gravity and Magnetometer Surveys and Interpretation

Suite 135,6101 Southwest Freeway Houston, Texas 77027

Phone: A.C. 713-666-0266 C. T. Austin E. L. Bishop

EVARD P. ELLISON Geologist

1214 Americana Bui lding 225-6285


-- - -

ERNEST A. ELWOOD, JR.

Prudential Drilling Company

1880 Post Oak Tower


PAUL FARREN


3eodata Building 667-3317

5603 S. Rice Pve. (77036)

H. J. GRUY & ASSOCIATES, INC. Petroleum Consultants

420 Southwest Tower 2501 Cedar Springs Rd.

Houston. Texas 77002 Dallas, Texas 75201

222-0376 (214) 742-1421

HENRY G. GUEST

Geologist

Well Log Consultant

1214 Swift 77025 665-5157

MICHEL T. HALBOUTY

Consul t~ng Geologist Petroleum Engineer

Independent Producer and Operator The Michel T. Halbouty Bldg.

i l l 1 Westheimer 622- 11 30 Houston, Texas 77027

- - -

THOMAS 0. HALL

Geophysical Consultant 622-8680 Office

621- 1870 Residence 5515 Cranbrook Rd.


HILLORD HINSON Consulting Geologist

228-9455 2138 Bank of the Southwest Bldg.


CHARLES JACOBUS

Drafting and Lettering

Home (evenings) 785-4824

KEPLINGER AND ASSOCIATES Petroleum Engineers and Geologists

1436 Americana Bldg. Houston, Texas 77002

227-3127 229 Kennedy Bldg.

Tulsa, Oklahoma 74103 587-559 1

GENTRY KlDD and

SHIRLEY L. MASON Geologists

813 Esperson Bldg. 227-823 1

L. A. KlMES Exploration Consultant

9 183 Katy Road Geology Geophysic!

464-295 1

A. L. Ladner Apache Exploration Co., Inc.

Geophysical Consultant C & I Building 222-9649


ORVILLE G. LUNDSTROM Nutter & Lundstrom

Geologists 889 Houston club Building

Houston, Texas 77002 227-0252

JOHN D. MARR Petroleum Exploration Consultant

Geophysics, Geology Seismic Data: Acquisition, Processing

and Interpretation 726 Chamber of Commerce Bldg.

225-4922

GEORGE N. MAY & ASSOCIATES Consulting Geologists and Paleontologists

Building 36, Heymann Oil Center P. 0. Box 51858Oil Center Station

Lafayette, Louisiana 70501 234-3379

W. B. McCARTER C. E. McCARTER

l ndependents 2522 Hazard

523-5733 529-1881 Houston, Texas 77019

- ~-

R. B. MITCHELL

Geologist

2801 First City National Bank Bldg.



JOHN C. MYERS Consultant in Oil, Gas and Sulphur

1207 Bank of the Southwest Bldg.

225-4133 225-4559


I. K. NICHOLS Gulf Coast Exploration Geologist

C.P.G. No. 932 41 S t i l l F o r e s t Dr. Houston, T e x a s 77024

Phone: 782-4970

KENNETH DALE OWEN

Geologist

Esperson Building


ROLAND B. PAXSON Consulting Geologist

Oil and Sulphur 3524 Sunset Blvd. 668-9196


RAYMOND D. REYNOLDS Geologist

436 Bankers Mortgage Bldg. Houston, Texas 77001

227-7633

A. L. SELIG 1907 Bank of the Southwest B'ldg.


FRED L. SMITH, JR. Consulting Geologist

Paleontologi.st 1014 C & I Building

Houston, Texas 77002 168-7300 225-5757

H. C. SPOOR, JR. HARRY KlLlAN

Geologists

2130 Chamber of Comrnerce Bldg.

iouston, Texas 77002 224-0588

STALLWORTH & HURST

Gealaglcal, Petroleum & 59 Mezzan~ne

CIVIC Englneerlng Oraltmg Chamber of Commerce Bldg

Vo l~~met r~c Plan~metry Houston, Texas 77002

Phone 223 7343

CRAMON STANTON Geologist

2229 Chamber of Cunmerce Bldg Houston, Texas 77002

224-2759

S. BROOKS STEWART

Geophysical Consultant 320 Bankers Mortgage Bldg.

222-7718


HAROLDVANCE Petroleum Investment Counselor Petroleum Evaluation Engineer

227-3949 1429 Bank of the Southwest Bldg.



GENE VAN DYKE

Van Dyke Oil Company

Southwest Tower

228-8174

MERLIN J. VERRET Geologist

Suite 401 Magnolia Life Bldg.

Lake Charles, Louisiana 70601 Phone:477-436-9575

LEBEN DRILLING INC. STANLEY WAHL Exploration Manager

333 Park Avenue Building-Suite 217 Oklahoma City, Oklahoma 73102

(405) 232-8516

J. C. WALTER, JR. Geologist and Petroleum Engineer

242 Main Bldg. 222-243 1


Home Phone: 785-2030 - - -

JAMES A. WHEELER Geologist

C.P.G. No. 109 926 Americana Bldg.-223-1618


JAMES M. WILSON


246 Main Bldg.

225-2145

WOODHAM CONSULTING CO .

Geological-Geophysical Consultants

Bill Woodham-H. R. Warren

1200 C & I Building

227-4138

GEORGE F. WATFORD

Prairie Producing Company

573 The Main Building 225-5413 Houston, Texas 77002

AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS - House of Delegates - Several o f our society's members have been elected to the newly created House

o f Delegates o f the AAPG. Our local Delegates include:

Douglas E. Bacon Cyrus D. Cantrell, Jr. Royce E. Schneider Reece L. Berry George H. Gore Benjamin J. Sorrel1 James D. Bartell George C. Hardin Charles E. Trowbridge Roger W. Bryan Robert C. Mason Abe W. Wagner, Jr. Henry A. Campo William A. Poe James L. Wilson

CONVENTION - Southwest Section - AAPG

WHEN: February 7-9, 1971

WHERE: Abilene, Texas - new Abilene Civ ic Center. Headquarters Motel - Downtowner Motor Inn.

THEME: KEYS TO FINDING OIL & GAS

PROGRAM: A program has been planned that w i l l be o f interest and value to geologists of any region i n the world. Approxi- mately 17-1 0 outstanding geologists w i l l present papers i n four symposia:

1) Economics - Key to Objective Reservoir Evaluation. 2) C l as t i c Depositional Systems - A Key to Reservoir

Rocks.

3) Depositional Models - Key to Genetic Interpreta- tion o f Reservoirs.

4) Subsurface Environments - Keys to Re s e r v o i r Pre- diction.

ENTERTAINMENT: "Ice Breaker Cocktail Party" Sunday evening. Efforts are being made to insure that no one leaves hungry or thirsty.

SMACKOVER ROSE: Presentation o f a play with dinner - Monday evening i n the "Windmill Theatre" style o f the day. smackover Rose was published by Fort worth Geo- logist David Dean. It i s the story of a young lady who would do anything to get an o i l deal. Rated X.

-- Craig Barclay Associate Editor

AlPG SPECIAL COMMITTEE REPORT

The article that follows i s a condensed version of the report on an Ad hoc committee of the American Institute of Professional Geologists on "The Taxation of Over- riding Royalty Interests." I t was the opinion of the members of this committee that many geologists were not cognizant of this inequity i n the tax laws and would not realize their tax l iabi l i ty for this type of transaction. Many tax experts, including some Internal Revenue Agents, agree that the method i s inequitable. Since i t isbased on the d e c i s i o ns o f the tax courts, the Internal Revenue Service cannot correct the inequity. I t i s presented here as a matter o f information for the independent geologists and to gain support for I e g i s l a t i o n i n Congress which could correct this unfair tax treatment of Overriding Royalty Interests.

-- J. A. Wheeler

TAX TREATMENT OF

RETAINED OVERRIDING ROYALTY l NTERESTS

by

Leroy Go t l in

The tax treatment by court law and followed by the United States Internal Revenue Service on a retained overriding royalty interest i s so contrary to reason that i t creates a very serious operating problem for a g e o l o g i s t who puts his own money i n mineral leases - be i t o i l and gas or any other mineral. This tax treatment i s wry damaging, i n that i t affects the e c o n o m i c heart of the independent or consulting geologist and could result i n restricting or destroying this segment of the mineral industry. Many of the professional geologists who engage in creating ideas for prospects are not aware of this inequity when they retain an overriding royalty interestunder their prospect. These geologists could suffer disastrous effects financially by not adjusting their business to remove this tax burden, as contrasted to aligning their business interest with the advantage of ownership - which, by the way, i s the reward of our private enterprise system. This adjustment needs to be done prior to the end of each taxable year. Failure to do this w i l l result i n a punk Christmas.

The basis for this tax inequity i s i n the method used by the Internal Revenue Service i n establishing a value, for tax purposes, of a retained overriding royalty interest. The method is based, init ial ly, on a tax case t i tled Palmer Vs. Bender, 257 U.S. 551, dated 1932. I t can be found discussed i n the "Tax Coordinator1' prepared by the Tax Research

Institute o f America, Inc. under Depletable Economic Interest, Code Number N-2503.

There have been other s u b s e q u e n t coses to support this court law. Since the I .R.S. Code i s based on a ruling o f the courts, there i s no latitude for negotiating the value of a retained overriding royolty interest and its value, for tox purposes, i s based on the original cost of the leases.

A simple exomple o f this inequity i s cited:

When "X" purchases an o i l and gas leose from "Y" for $16,000 a n d s e l l s i t to "Z " fo r$20 ,00O1re ta in ing anoverriding royalty interest, "X" finds his tax liability in the transaction

to be based on o net profit of $20,000 (subject to depletion), i n s t e a d o f t h e n e t profit o f $4,000 which he actuolly received. In this e x om p l el "X" can be on independent professional g e o l o g i s t , "Y" a m i n e r a l owner, ond "Z " an i n d ep e n d e n t mineral investment compony which purchases mineral leases.

The current procedure used by the Internal Revenue Service, based on court law, for evaluating o retained overriding royalty interest i s to consider the purchase price ($16,000) as the value o f the retoined overriding royalty interest. The basis for this interpretation i s the view that "X" actually subleases the minerol interest to "Z" since

he retains a continuing economic interest i n the mineral property. This i s i n the face of .the fact that in the sole of the mineral leases by "X" to " Z " there i s o clear-cut and

undivided partition o f the interest and no ownership or control i n the working interest i s retained by "X", the seller. Proof o f a sale i s the foct that "Z " can extinguish the

-retained interest o f "Xu by d r o p p i n g the lease without any regard to "X's" desires. This "sublease" view appears to be the result o f an accountant playing attorney, or an ottorney playing accountant, or both playing "oi l man for a day. "

There can be no argument thot the retained o v e r r i d i n g royalty interest in the

created prospect i s a continuing e c o nom i c interest. The serious inequity i s i n the method o f establishina the value. Under the current inter~retot ion no consideration i s given for the perc&t or fraction o f the total that the rLtained economic interest represents. The volue o f the purchase price i s established as the value o f the retained overriding royalty interest, r e g a r d l es s o f whether the retained overriding royalty interest i s 1% or 100%.

The crux o f the motter i s that our Federal income tax people need o professional approach to evaluation o f o retoined overriding royalty interest on non-producing minerals. (What group i s better quolified to give them this profession01 approoch than the professional geologist?) I t i s important that the membership understand that the approach to evaluation applies to retained economic interest i n a l l minerals, not just o i l and gas. Profession01 geologists dealing in clays, gravels, etc. ore offected i n the same manner as a geologist dealing exclusively i n o i l and gas.

The professional approach can be insured by furnishina the United States Internal . . - Revenue a law with a general rule to use as a rebuttable presumption, and i t should be

that a retoined overriding royalty interest be valued at its fraction o f the whole, times the original purchase price o-f the leases. This would al locate the basis o f the evaluation between the amount sold and amount r e t a i n e d . So, i f "X" keeps a 16th o i the

whole as overriding r o y a I t y interest, its value would than be 1/16th o f $16,000, or $1,000. This general evaluation, being a rebuttable presumption, can be set aside by the testimony o f a professional g e o I o g i s t who, by the way, i s the only man with the

proper background to do this type o f work.

The conclusions drawn from this study are as follows:

1 . There i s a serious inequity i n a tax law that establishes the value o f a retained O.R.R.I. (a continuing economic interest)

i n minerals on the basis o f the arbitrary approach that uses the total cost, rather than on the proportionate percent o f the total cost that the retained O.R.R. I. represents.

2. This tax law i s very damaging i n that i t affects the very economic heart o f the independent or consultant geologist and can result i n restricting or destroying this segment o f the United States mineral industry.

3. Many of the professional geologists who engage i n creating ideas for prospeck are not awareofthis inequity when they retain an 0. R. R. I. under the prospect. They could suffer disastrous effects f inancial ly i n calculat ing their annual tax lia- b i l i t y .

4. Since this inequity has been createdin the tax law by court decisions, i t w i l l be n e c ess a r y to correct this by Congress- ional action. Interested geologists should contact their United States Senators and Representatives and a p p r i s e them of this inequity. In contacting these legislators they should be completely informed o f the current method employed by the I.R.S., its inequity, and with the suggested method o f correcting the

present arbitrary approach to evaluating a retained overriding royalty interest.

5. The professional approach can best be insured by furnishing the United States Internal Revenue a law wi th a general rule to use as a rebuttal presumption. This law should state that acontinuing economic interest (a retained O.R.R. 1 .) be valued a t its fract ion o f the whole, times the original purchase price o f the leases. This general rule, being a rebuttal presumption, can be set aside by the testimony o f an expert witness.

December, 1970

More than 200 members of the Houston Geological Auxiliary attended the first party of the year on November 5at River OaksCountry Club. Belen (Mrs. Fred) Schall, Ann (Mrs. Glen) Neighbors, and their committee of twenty-one ladies decided to make i t an afternoon sherry party. Apparently their choice of time was excellent, since many members who had not been able to come to recent brunches or luncheons were present.

Committee members alternated i n the receiving line and at the refreshment table, which was set up in the shape of a plus sign. Belen and her committee deserve a big plus for this novel idea, as the flow of guests was better than I have ever seen. The striking bouquet of loquat foliage and yellow mums in the center of the table was designed by Mary Ruth (Mrs. Harold) Watt and Mary Lou (Mrs. George) Carver. Nelda (Mrs. James) Sims entertained with appropriate teatime music from the grand piano in the east foyer of the main ballroom.

Since fashion i s such a topic of controversy this season, i t was fun to note the different lengths and styles. Three midi-lengths were: the striking black outfit with boots Donna (Mrs. Ross) Dawson was wearing, a soft blue coat dress worn by Ann (Mrs. Fred) Birdsall, and a b r i g h t red chosen by Valerie (Mrs. Royce) Oualline, who was chatting about the 80 pounds of fish her husband and son had caught at Lake Livingston the day before. Earlier in the year they had won a fishing trophy.

G a u c h o pants and b o o t s were worn by Virginia (Mrs. Tom) Purcell and Dixie (Mrs. J. D.) Bartell. At least a dozen members were wearing pants suits of different kinds.

Bright colors were a p o p u l a r choice, as hot pink was selected by both Nancy (Mn. Ray) Heggland and Florenze (Mrs. Curl) Benz. A clear bright red was most flat- tering to Ruth Ann (Mrs. Jim) Grady. The orange suit worn by Teddine (Mrs. John) Loftis was outshone only by her elation at winning the Gold Cup for her flight at the mast recent golf tournament at Champions.

Beth (Mrs. Wade) Turnbull was proudly wearing the gold roadwnner pin she had received as a gift on guest day at Lakeside. In the same conversational group, we saw Mary (Mrs. T. P.) Woodward and Dotty (Mrs. David ) Fransen.

Ruth (Mrs. Albert) Ladner and Isabel (Mrs. Bird) Swan, friends far many years, were enjoying a chance to visit together. Hanny (Mrs. Max) Bornhauser was looking forward to a visit with friends in Mexico. Last spring she toured Hawaii, where her husband was observing v o l c a n o e s i n action, and n ex t spring they wi l l go again ta Europe.

Diana (Mrs. Arthur F.) Christensen was declaring i n her charming London accent that this was her first and last Houston Auxiliary party because of a t r a n s f e r to New Orleans. Sally (Mrs. Paul) Berner encouragingly described the friendly New Orleans Auxiliary.

Elizabeth (Mrs. Fred) Goerner was able to leave her sixth grade class at Emerson Elementary in time to enjoy the last hour of the party. We were so glad to see her as she was visiting with June (Mrs. Paul) Farren, just back from a five-week trip and stil l going through the accumulated mail.

Politics was being recapped i n several conversations. Many had been involved in c a m p a i g n i n g , but Dr. Martha (Mrs. John) Tyson and Norma Jean (Mrs. Andrew) Bacha were two workers who were glad he election was over.

Bea (Mrs. Ted) Hole was looking so trim minus those 25 pounds. Wyota (Mrs. Doyle) Davis was tel l ing Phyllis (Mrs. Ken) Grittman and Teeta (Mrs. Sam) Udden how great she feels to be a lady o f liesure again after several months o f school library work.

Gladys (Mrs. J. W.) Schmotzer was one o f the large group of H o u s t o n i a ns to attend the recent GCAGS meeting in Shreveport. She was especially impressed by the luncheon at the dinner theater where Guys and Dolls was the feature. As door prizes the Shreveport ladies used a china doll, a hand kn i t sweater, a painting, and a purse a l l made bv their talented members.

Marion (Mrs. Orv i l le) Lundstrom was i n t r o d u c e d at the luncheon with other auxiliary presidents, looking very relaxed despite a l l the act ivi ty o f the wedding o f her daughter a few days before. And speaking o f weddings, Ann Neighbonsaid being mother-of-the-groom was enough for her!

GEO-WIVES

Twenty-six couples a t t e n d e d the Geo-Wives Ice Skating and Pizza Party on October 17. Kay (Mrs. Stephen) Ogier and Dot (Mrs. Charles L.) Jones were chairmen for the novel party which began at W i n t e r l a n d and concluded at the Village Inn on Kirkwood. Door prizes were won by Joan and Ralph Akin, Leslie and Jim Ragsdale, and Mary Ann and Robert Mayse.

The regular couples bridge group o v e r f l o w e d to three Geo-Wives homes this month. Could you guess where the conversation was centered when i t turned out coin- cidentally that among h e six couples dining and playing bridge at the home of Verna and Jon Swett, f ive couples had l ived i n Tyler at one time?

We were sorry to learn that Louise George died on October 20. Our sympathy goes to her husband Jesse and to her family and many friends i n Houston.

Sincere sympathy also is extended toVirginia and TomBarber on the recent death o f her father and o f her mother last spring and to Ken and Phyllis G r i t h a n on the death of his mother.

Vista, California, w i l l soon be home for Merle (Mrs. Willard) Day, who w i l l be l iv ing near three o f her sisters. Eloise (Mrs. Wallace) Thompson, hosting a farewell l u n c h e o n for Merle at the Warwick Club, was alsa looking f o r w a r d to a cruise in January. Other geological wives at the luncheon were Gertrude (Mrs. M. C.) Lucky, Helen (Mrs. David) Hedley, Barbara (Mrs. James C.) Barker, and Adele (Mrs. J. E.) Krisle, who had just returned from a two-week trip. We shall miss Merle Day, but wish her much happiness i n her new home.

Since Christmas always means visitors i n town, let us hear about any company you are expecting for the holidays, especially geologist families who have formerly l ived i n Houston. Just give me a cal l a t 686-6494.

- Sally Bybee

T. Wayne Campbell John B Dunlap. Jr

PALEO-DATA, Inc. 602 deMontlu7in Building

New Orleans, Louisiana 70112 504-525-6373 & 504-529-3097

Paleontology - Stratigraphy - Paleoecology South Louisiana - Offshore Gulf of Mexico

GEOPHYSICAL SERVICES

7WTELEDY NE EXPLORATION

5825 Chimney Rock Road

P. 0 . Box 36269

Houston, Texas 77036 713 666-2561

SIDNEY SCHAFER AND COMPANY

2200 Welch Avenue Houston. Texas 77019

Sidney Scha fe r 5 2 9 - 8 7 8 9 Jack C. Weyand

5 e i m o p u p h 5~ru ice CorporuIion A SUBSIDIARY OF RAYTHEON COMPANY

529 Capital Nat'l. Bank Bldg. Houston, Texas 77002

Robert B. Baum 222-907 1

ELECTRIC AND WELL LOGGING

BAROIO DIVISION NATIONAL LEAD COMPANY Mud Analysis Logging

P.O. BOX 1675 524-6381

McCULLOUGH SERVICES Logging & Perforating

P.O. BOX 2575 672-2461

DRESSER ATLAS

Division of Dresser Industries, Inc. 1045 The Main Building Houston. Texas 77002

J. L. P. Campbe l l W. D. B ishop R. M. "Dusty" Rhodes R. C. Al len Ross B. S m i t h

SCHLUMBERGER WELL SERVICES 1512 Bank of the Southwest


H . D u a n e Babcock W. P. Gore J. C. (Rip) Connal ly E. H . He ide r J . B. Blazek

CORE ANALYSIS

CORE LABORATORIES, INC.

3615 Gulf Freeway

Core Analysis and Mud Logging

J o h n E. F u r e n 2 2 3 - 4 1 9 3

GEOPHYSICAL INSTRUMENTS

DRESSER SIE

P. 0 . Box 2928, Houston, Texas 77001

R. L. McCelvey 782-7100 Manager, SIE Division Ex. 2702

OIL PRODUCERS

VAN DYKE OIL COMPANY

4 0 0 Southwest Tower


Gene Van Dyke 228-8174

OIL FINANCING

BANK OF THE SOUTHWEST, N.A.

P. 0 . Box 2629 Houston, Texas 77001

Frank McGonagill, Vice President CA 5-1551

Manager, Oil and Gas Department Ext. 481

DRILLING COMPANIES

-

BIG " 6 DRILLING COMPANY

1228 Bank of the Southwest


W. H. Smith, President CA 5-6576

OTIS RUSSELL DRILLING COMPANY

2916 7th Street

Bay City, Texas

Otis Russell CA 8-7919

TRITON DRILLING COMPANY

P. 0 . Box 22166 Houston 77027

SU 2-2250

Robert Briggs Roland Nelson

LOG LIBRARIES

REPRODUCTION COMPANIES -- -- - -

CARDINAL PRINTING & LETTER SERVICE, INC.

234 Esperson Bldg. Houston, Texas 77002

Mrs. Pollyann Howe

Mrs. Chic Adams 223-9309

HOUSTON BLUE PRINT & STATIONERY CO.

700 Walker CA 3-4358 1324 Travis CA 4-6036 3301 Richmond Ave. JA 9-4141

Houston, Texas

PETROLEUM INFORMATION

Petroleum Information. ca.OlAl*)*

" S.4-v 0, A < ,dm <-,

Constant coverage of 011 8 gas ac l w t y throughout Ihe U S 8 Western Canada olferlng 755 ~ n d l v ~ d u a l prod ucls 4 servlces from d r ~ l l ~ n g 8 pro duct~on reports lo computer apph

PETROLEUM I N F O R M A T I O N 204 1.1 N a l i o n o l Life 8 ldo . . H o u s l o n 228.9041

PETROLEUM I N F O R M A T I O N / R I N E H A R T 2301 C a r o l i n e St., H o u b t o n 222-1385

hgs bulletin volume 13 no.4 (december 1970)geo science notes., '. ' james g. word, jock...

Documents