An institutional interpretation of unitization legislation: the case of Texas and Oklahoma

Abstract

During the production of an oil and gas reservoir the common pool problem asserts itself as multiple users have the right to withdraw hydrocarbons from the same source of supply. Unitization offers a private contractual solution to this problem. Texas and Oklahoma have both adopted legislation enabling the formation of unit operating agreements that allow for a private contractual solution to the common pool resource problem. Intriguingly Oklahoma has adopted the most liberal unitization statute of any major oil producing state and Texas the most restrictive. The difference between Texas and Oklahoma has traditionally been explained by assessing the relative influence of majors and independents in the two states at the time the legislation was adopted. However, this explanation while no doubt partially valid does not tell the complete story. An examination of land tenure patterns in the two states and an analysis of field characteristics from a random sample taken from each state indicates that the Oklahoma may have been facing a far greater problem in regard to the fracturing of the mineral estate and thus a more drastic solution was required.