Petroleum Economics - The Economics of Overdevelopment (T. P. 1084)

The purpose of this paper is to invite attention away from the obvious. direct monetary costs of oil-field overdevelopment (as distinguished from "social costs") to a consideration of the role played by the exercise of freedom to create even allegedly excessive1 plant facilities in contributing to the maintenance of equilibrium in the wholc economy and in promoting material progress. The obvious and most commonly discussed effect of overdevelopment of oil fields is illustrated by the allegation that already the excessive development of the East Texas field has cost upward of $162,000,000;2 in other words, the drilling of 12,500 wells more than the number estimated as the requirement for economical recovery of the reserve has unnecessarily raised the total cost of development that amount. Many other illustrations of so-called excessive development of oil pools could be presented. Some of them, like Cushing, Powell and Long Beach, might be drawn from the era antedating widespread discussion in the trade of such matters as optimum well spacing, reservoir energy, the conservation rate of depletion of reserves, etc. Numerous other cases can he found in the records of the current era, which began with the introduction of rationalized restriction of production. Besides East Texas, there may be mentioned Oklahoma City, Centralia and. more recently, the town-lot development of Bloomingdale, Michigan.