Legal Aspects of Limitation of Oil Production to Market Demand

THE QUESTION of whether the production of oil should be limited to market demand has been constantly discussed during the last two years. Oil men, legislatures and courts have reached highly conflicting conclusions. Opponents of limitation to market demand assert that it is a scheme of the big purchasing companies to fix prices and to create a monopoly. Proponents, on the other hand, declare that such a limitation is necessary to prevent physical waste and that the effect on prices is merely incidental. A brief review of market demand legislation will disclose the confusion existing. The laws of Oklahoma,' prohibiting waste of oil and gas, specifically' authorize limitation to market demand as a method of preventink such waste. These laws and the proration orders based thereon have been upheld by the Supreme Court of Oklahoma, by several three-judge Federal District Courts, and by the Supreme Court of the United States.' Kansas has a similar law3 but no case has been found which discusses its validity. About a year ago the California Legislature passed a comprehensive conservation act, generally known as the Sharkey Bill giving authority to restrict production to an amount representing current requirements for use, taking into consideration oil and products in storage. This may be considered as equivalent to limitation to market demand. The Act was defeated upon referendum vote after a hard fought campaign in which it was charged that the Act would result in destruction of the independent operators.