Crude Petroleum - Cooperative Development of Oil Pools (Summary Only; with Discussion)

Viewed from the standpoint of an economist, the task which faces the petroleum producing industry is one of intelligent adjustment so that technology can perform the job of efficient exploitation, while at the same time the interests of producers and consumers remain adequately protected. The crux in the task of making this adjustment lies in the difficulty of arranging the instrumentalities of production to accord with the physical characteristics of oil. For example, oil is exploited under a competitive economic system based on private ownership and contract, with the hope that profits will attract capital and enterprise, and with competition supposedly acting as the regulative factor. Whether such a scheme of industrial organization works is partially dependent upon the ability of the producer to withold or produce his commodity as he sees fit, in accordance with market demand. But in the oil industry, the enterpriser does not have complete control over the expansion and contraction of production, for, because of the decisions of the courts that ownership in oil depends upon its possession, desire for immediate output becomes the controlling force in production. Consequently, the theoretical commands and restraints of free enterprise are not operative because there is no security of property, and the result is loss due to the following economic maladjustments: (1) Production not completely responsive to price control. (2) Production at excessive cost. (3) Loss of oil, a highly exhaustible natural resource. If economic maladjustments are to be eliminated, there should be a change in the organization of production so as to provide efficient exploitation of the oil and at the same time to insure individual property interests. The latter is necessary if economic considerations are to become primary factors in regulating production. To attain these ends, the entire pool should be developed as one big engineering project and some scheme