McKie, James W.; McDonald, Stephen L.
February 1962
Quarterly Journal of Economics;Feb62, Vol. 76 Issue 1, p98
Academic Journal
This article focuses on the conservation of petroleum products in the U.S. The waste of oil resources, which led, thirty-odd years ago, to the imposition of conservation controls, was the result of the rule of capture. The owners of the surface rights above oil pools would drill wells in a dense pattern along the edges of their properties and produce as rapidly as possible in order to drain the oil or gas from under neighboring tracts. The resulting exploitation was unrestrained by any consideration of long-run price, demand or cost. Any conservation policy must be adapted to the special technical characteristics of the industry producing the resource. The volume of oil and gas ultimately recoverable from most reservoirs depends on the rate of production over time, among other things. The production controls have prevented a flood of low-cost oil from undermining this price. In effect, the inefficiencies forced upon operators of flush properties have sustained the operation of the unrestricted marginal wells. The allocative system, however, has failed to control two variable elements in crude oil availability. One is the number of wells, which has increased out of proportion to oil reserves owing to the encouragement of unnecessary drilling in the per-well proration formulas.


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