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of income. Consequently, the effect of subdivision on oil exploration
is a problem of paramount importance to the Company. Careful
study of this problem indicates that it is unlikely that oil exploration
will be very greatly affected by a carefully planned community de-
velopment, skillfully zoned and executed. As mentioned in the Intro-
duction, real estate subdivision and oil exploration and development
in the past have not been compatible. At the present time, however,
there is sufficient drilling activity in or near both industrial and resi-
dential tracts to indicate that real estate and oil developments can
exist together.
Industrial realtors and railroad companies controlling large acre-
ages earmarked for industry report that oil exploration does not in-
hibit sales of land to industrial clients. The railroads with very few
exceptions retain 100 percent of the mineral rights belonging to prop-
erty sold to industries. Both Union Pacific and Southern Pacific Rail-
:?
roads were quite positive on this point; however, it should be pointed
out that certain exceptions do exist. Some major companies, like
General Motors, Ford, and Chrysler, have demanded and received
the mineral rights to properties purchased from the railroads. Ap-
parently, where large companies use bond issues for financing, the
bond holders want all prior rights to the property cleared and in the
hands of the bond issuer. Such granting of mineral rights has been
the exception rather than the rule.
The railroads retain enough property on th~ir right-of-ways so
that drilling can take place. City and country zoning ordinances con-
trol drill site locations and drilling activities. Limits are set on how
close to existing structures a drilling rig can be placed, and drilling
islands must be .strategically placed to avoid conflict with the law. In
view of these facts, it can be said that drilling, including exploratory
drilling, can and will be done in industrial areas on land where the
mineral rights may not be owned by the surface rights owners. Oil
exploration has been carried out successfully in the central manu-
facturing district of Los Angeles, and a drilling rig in now operating
on the 20th Century.-Fox lot in Beverly Hills.
Residential developments, either planned or in place, present a
somewhat different problem with regard to mineral rights. People do
not like to have a drilling rig or a pumping unit on land adjacent to their
property, particularly if they have no mineral rights. The Federal
Housing Administration (FHA) will not approve loans for residential con-
struction in an area where unsightly oil wells may be erected.];_/
1/ The FHA will approve loans on properties where drilling will not take
place within ;300 feet of residences. Certain rules regarding drilling
islands in residential areas and the right to surface entry to such is-
lands are observed by the FHA. It is aoubtful if the FHA would guar-
antee loans up to the allowable limit on properties where drilling is-
lands are retained. The FHA does not rule out loans on properties
,where the sell.er retains 100 percent of the mineral rights below 500
feet, quit claiming his mineral rights above that depth.
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