Introduction

This study of conservation regulation in the petroleum industry of the United States has two major, interrelated purposes. The first is to present a comprehensive and balanced explanation of a complex, still evolving system. The resulting coverage and emphasis differ in several respects from those of predecessor studies. The technical basis of petroleum production, the concept of waste prevention underlying most regulation, the prevention of external damages, and the economics of well spacing are given unusual attention; the regulatory programs of all the significant producing states, not just the “market demand” states, are surveyed; and, in connection with the analysis of each major type of regulation, the more important new developments in the postwar period—specifically since 1948—are traced. The second purpose, also differentiating this study from earlier ones, is to develop in detail an economic framework of analysis and to apply this framework in interpreting, evaluating, and proposing changes in the existing regulatory system. Three chapters are devoted to the economics of petroleum conservation, from the role of conservation in the general economic process to the price-lowering and price-stabilizing effects of universal unit operations in a competitive petroleum industry. The resulting framework permits some unusual interpretations and evaluations—for instance, of controlling external damages and regulating well spacing—but it has, perhaps, a more important function; it provides a broadened basis for the old and familiar recommendation that all petroleum reservoirs be developed and operated as units.