In practice, proration is supported to a considerable degree by voluntary conformance on the part of the oil producers. All States producing oil are not members of the oil compact. Those belonging are Oklahoma, Texas, Kansas, New Mexico, Colorado, and Illinois. While they account for 70% of United States produc tion, that does not mean that the production quotas assigned to these States are always adhered to. Failure to observe quotas re stricting fields, or pools, or wells on the part of producers has coined a new phrase in oil terminology, "hot oil." During the competitive development of the East Texas field in the early 193os, so much "hot oil" was produced and sold that the oil mar ket collapsed. More recently, in 1937 and 1938, the development of many new pools in Illinois flooded the market with "hot oil" despite the fact that Illinois is listed as a member of the Federal Oil Compact.
So great an oil-producing State as California, accounting for 20% of the nation's petroleum output, is not a member of the Federal Oil Compact and has no laws for the regulation of produc tion such as enacted in other oil producing States. But for ten years California has succeeded in establishing a good record of voluntary curtailment. Some idea of the complexities this entails, as well as of what the whole proration quota control procedure entails, may be given by briefly describing California's oil opera tions which are fairly typical of the major American oil fields.
California has 19,o00 oil wells located in 112 separate oil fields and owned by i,o6o separate and distinct individuals, partnerships, and companies. Productive depths of wells range from 400ft. to over 13,00o feet. Capacity to produce ranges from one barrel a day in some wells, to indeterminate amounts in others conserva tively estimated to be as high as 25,o0obbl. daily. There are oil fields with as many as eight separate and distinct productive horizons, each of which comprises a separate oil poel. Ownership of wells ranges from individuals with a single well to the Stand ard Oil Company of California which has more than 3,300. All these wells could produce, it is estimated, in excess of 2,000,000 bbl. daily, nearly two-thirds the actual daily average production of all fields in the United States. Yet consumptive demand for California oil was around 600,000bbl. daily and production had to be kept as nearly as possible to that figure. The problem of cur tailing production of that State and all States is to reconcile and deal equitably with all the varied factors involved. It means com promises of all sorts between the oil producing refiners, non producing refiners, landowners whose sole source of income is from royalty oil, the promoter-well-owner sometimes inade quately financed, and the strong-minded individualistic producer who would rather not co-operate. A formal group of oil producers. with an oil umpire, works to keep production within bounds by voluntary action in California.
In the States belonging to the Federal Oil Compact, production quotas are recommended based upon scientific information secured through detailed investigations by the U.S. Bureau of Mines, out lining trends of production and consumptive demand. The regula tory bodies establish the production quota. Oil not required for current consumption and reasonable working stocks is kept below ground in its natural reservoir. This, in addition to economic ad vantages, has the advantage of contributing to the more efficient ultimate extraction of the oil by conserving the natural reservoir energy.
To cope with the "hot oil" situation and to aid the States in their proration efforts, the Federal Congress passed legislation barring "hot oil" from interstate commerce, and Federal authori ties seek to enforce this law.
All this is a far cry from the old days of free, competitive drill ing and production. The rule of capture has been prescribed in many ways by increasing limitations and exceptions. Not only is the producer prohibited from producing in excess of established allowable production, but he cannot drill without a permit of a regulatory body duly applied for, or locate a well except as the applicable spacing rule, or exception granted, specifies. He cannot penetrate surface water sands without adequate subsequent protective casing, complete a well without a proper casing pro gram and suitable means of shutting off extraneous water, or pro duce a well except through tubing with restricted flow. He cannot let natural gas escape from his well or use gas in the oil pool as a lifting agency for his oil beyond a permitted gas-oil ratio, and in many other ways he must subordinate his hitherto unrestricted right of capture to the public policy of the State and adjust it to the co-equal and correlative rights of his neighbour.
A more thorough knowledge of oil conditions in the pool below ground and of productive capacities of producing strata has dem onstrated that a uniform spacing of wells and efficient utilization of the reservoir energy inherent in the oil and gas within the pool, will result in the maximum recovery of oil at the minimum cost. This knowledge has promoted the unit operation of some pools, that is, the operation by all surface owners or lessees of the pool as a unit. This may be said to be the ideal operation from the standpoint of conservation and efficiency, but unit operation is still far from being realized as a general policy, and most pools are so held and operated by many competitive interests that each operator still must resort to the rule of capture, with the restric tions noted, to preserve his equity. Unnecessary wells in great numbers are still being drilled. Expressed in other terms, while production has been largely divorced from the effects of the rule of capture by limiting oil withdrawals, drilling has not been freed from this influence to the same extent. In the administration of proration, allowables have usually been allocated on a per well basis rather than in proportion to the underlying oil reserve. This policy not only has stimulated more wells than necessary to ex tract the oil but it has encouraged drilling in advance of economic requirements.
Nevertheless, in totality the result of control in the United States has been good, and, measured from every standard of ap praisal, the accomplishment for greater stability and for conserva tion of a valuable natural resource has been estimable. With ap proximately 318,600 wells producing at the end of 1926 and with practically no curtailment, the total production for that year was 770,874,000bbl., an average of 2,42obbl, per well per annum. Dur ing 1938, with production restricted to minor percentages of the daily capacity of the wells in practically all major producing fields, the total production for the year amounted to 1,213,254,000bbl. from approximately 350,000 wells, an average of over 3,000bbl. per well per annum, indicating the increase in the total potential producing capacity of completed oil wells accompanying pro gressive restraint upon current production.
What is being attempted in the United States by the control procedure in its present stage is the regularizing of the petroleum industry without destroying competition or private initiative and enterprise. The oil business in the United States is the first great industry to have undergone control, having redesigned its eco nomic structure to find, within existing legal background, a prac tical solution to the complicated problem of unchecked operation under the rule of capture.