The Case for a Texas Compulsory Unitization Statute.

Authors

Paula C. Murray
Frank B. CrossFollow

Abstract

Compulsory unitization of oil and natural gas reservoirs would substantially enhance the welfare of the United States and of Texas in particular. The present regulated free market for oil production produces both inefficiencies and inequities. Consequentially, oil exploration is discouraged, oil production is unnecessarily costly and wasteful, and the private distribution of oil revenues can be arbitrarily unfair. Compulsory unitization would remedy many of these shortcomings which result from extant structures. Unitization means the cooperative development of an entire reservoir of oil or gas. Compulsory unitization in most states also contains a variety of substantive and procedural prerequisites to unitization which unduly delay unitized operations or preclude them altogether. In many states, unitization is compelled only after a majority of rights owners' petition for such action. Some states require approval by seventy-five percent of the owners overlying a reservoir. Additionally, most statutes also require a showing that unitization would produce a substantially increased recovery, or proof of unitization is cost beneficial. States place the burdens of proof on the proponents of compelled unitization. The primary virtue of unitization is the improved efficiency of oil production. This enhance efficiency is an important objective to pursue. While economic efficiency is generally a presumptively valuable end for government action, productive efficiency may be unusually important in the case of oil and gas production. Notwithstanding the importance of efficient oil and gas production, prevailing economic structures create considerable inefficiency. This system enables each individual to extract petroleum or natural gas resulting in an anarchic free-for-all which bears little resemblance to the free market of most goods. Unitization of oil fields will treat the cause of the market problem and cure the most serious inefficiencies.

Publisher

St. Mary's University School of Law

Recommended Citation

Paula C. Murray & Frank B. Cross, The Case for a Texas Compulsory Unitization Statute., 23 St. Mary's L.J. (1992).
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol23/iss4/6