Proration and Well Spacing in Texas

In determining proper well spacing today we must consider the effect worldwide overproduction of crude oil will have on the oil producer in Texas both today and in the future. No longer can a producer here expect to enjoy high allowables, nor have any assurance that the price of his oil will be stabilized. We have seen both low allowables and an erosion of the price level. With this overproduction of crude oil seeking a market, most of the foreign crude is far cheaper to produce than the oil found in Texas. In fact, oil is cheaper to produce in many states in the United States than it is in Texas because of higher allowables or no proration laws. In effect, Texas is holding an umbrella over the heads of our neighbors. In addition, we find that we are competing with ourselves in that our gas production is taking away our oil markets. As you are all aware, the demand for gas is expanding at a much greater rate than the demand for oil-in some instances because gas is cheaper on a Btu basis and in other instances because consumers are willing to pay a premium price. Foreign Production - World Oil Market The Chase Manhattan Bank in its "Monthly Review of the Petroleum Situation" for July, 1959, made the following observation regarding gas: As the expansion of gas shrinks the market for fuel oils, requirements for crude oil are lessened. And that reduces the incentive to search for new reserves. As the process continues, producers may increasingly shift their operations to foreign areas where the combination of economic factors may look relatively better. Exploratory dollars spent abroad won't find reserves in this country - neither crude oil nor natural gas. This trend, already in evidence, if carried to the extreme, could lead to a deficiency in the United States of both oil and gas reserves. Once that happens, it is doubtful that petroleum would continue to be available at bargain prices. For Texas production to compete with oil from the Near East, where wells produce 5,000 B/D, we must work toward reducing our individual well costs and producing new wells at higher daily rates.