CHAPTER XXIII
OIL AND TIMBER LAND LITIGATION
Oil Land Ownership
The discussion in the previous chapter dealt with litigation under the Sherman law which checked the absorption of the Southern Pacific by the Union Pacific system and profoundly altered the relations of these two companies to each other. Our narrative will close with the mention of two other suits or groups of suits which concerned, the one, the possession of certain oil properties in southern California, and the other, the administration of lands—mainly timber lands—granted to the Oregon and California Railroad in the North by federal legislation of 1866 and 1869. The Southern Pacific Company took part in both of these controversies as a principal interested party.
The oil lands which until recently belonged to the Southern Pacific Railroad lay principally in the West San Joaquin fields in southern California. They covered an area of between 160,000 and 170,000 acres. In 1917, a committee of the California State Council of Defense estimated that the Southern Pacific and its subsidiary companies controlled 26.4 per cent of the total output of the state, although much of the oil so controlled was not produced upon the company’s own land. The actual production of oil by the Southern Pacific Company in June, 1918,[599] was 49,679 barrels out of 282,672 barrels of production by all companies in the state, or a little less than 18 per cent.[600] No later statistics of production by companies have been made public. In June, 1920, however, the Southern Pacific Land Company owned 19.38 per cent of all the proven oil land in California, and in addition the Southern Pacific Company held a controlling interest in the Associated Oil Company, also a large producer.
Unquestionably the Southern Pacific oil lands are valuable. A witness in one of the recent cases testified that he had told Mr. Huntington in 1893 that the railroad oil lands were worth more than the entire Southern Pacific Railroad, while it is common report that the value of the properties may run into the hundreds of millions of dollars. All this is, moreover, recent. The discovery of oil in large quantities was first made in southern California in the Kern River field, near Bakersfield, in the spring of 1899. This was followed by discoveries in the so-called McKittrick and Sunset fields, and by an oil boom of extraordinary proportions. In so far as the railroad owns oil lands, it has therefore recently secured an unearned increment which is not only of great size, but of a character entirely unanticipated by legislators of earlier days. This has given rise to controversy, in which the government has questioned the railroad title.
The peculiarity of the oil land litigation, and the reason why the federal government is involved, is found in the fact that the railroad land is mostly land-grant land, lying within the limits laid down by the Act of 1866 from which the Southern Pacific Railroad took its life. It follows from this that the railroad title was affected by certain reservations in the land-grant legislation, such as that of exempting mineral lands from the operation of the grants. The government offered to convey certain land to the railroad free of charge when it undertook to stimulate railroad building in California, but it did not include mineral land in this offer, except coal land and iron land. Not only this, but the exception of mineral lands was repeated in the patents later issued by the Department of the Interior, and in such patents the words, “excluding and excepting all mineral lands should any such be found in the tracts aforesaid,” were used, making the exemption apply to future discoveries as well as to discoveries occurring before the patents were issued. Evidently the legislature and the land office intended to limit the donations to the Southern Pacific by excluding unknown and immeasurable increments of value in so far as this might be done. Coal and iron were left, for the reason that these minerals were intimately connected with the construction and operation of the road.
Test Case
In 1910, one Edmund Burke filed a bill in equity in the Circuit Court of the United States for the Southern District of California, in which he challenged the title of the railroad to oil lands in an area covering five sections in Fresno County, California. This was a test case. Disregarding minor points, the larger questions at issue were the following: