The Basis of Proration in Texas

Abstract

The institution of proration is vital to the welfare of the oil-producing in the United States; yet its essential function is so commonly misinterpreted that its usefulness and even its continued existence are gravely menaced. Petroleum geologists are particularly concerned with the success of true proration and should not fail to understand its fundamental character. Oil producers too generally regard proration as a form of curtailment designed to prevent overproduction of crude oil and thereby to secure and maintain higher prices. In contrast to this generally held concept, proration in Texas, where it has been applied most widely and drastically, rests solely on (1) the conservation laws for the prevention of physical waste of oil and gas, and (2) the police powers of the State for the protection of the citizen in his basic property rights. Even the provision for the limitation to market demand, frequently denounced as control, is in fact fully justified as a means of preventing physical waste. Proration in Texas, then, can be employed only to prevent physical waste. In accomplishing this purpose it neither supersedes nor suspends the of capture. Nevertheless, it ameliorates the excesses and inequities that have arisen out of the application of the law of capture in the past. If the adopts an attitude that proration is to be used by the individual states or by the Interstate Compact to curtail production for the purpose of stabilizing the industry or improving the price level, it will force the courts to condemn a concept which in preventing physical waste renders great service.