The economics of petroleum . d1919, BY Sizes of Companies (Data from Federal Trade Commission) Size of Company in Barrels of AnnualProduction Cost of Production in Cents perBarrel 1914 1919 1,000, 250 000- 50 000 Under 50 000 Average of all The Competitive Factor in Production.—In the drUhng andproduction of oil there is a uniquecompetitive factor at work character-istic of no other substance, which hasa far-reaching effect upon the econo-mic behavior of petroleum and servesto explain its economic factor arises from the comp
The economics of petroleum . d1919, BY Sizes of Companies (Data from Federal Trade Commission) Size of Company in Barrels of AnnualProduction Cost of Production in Cents perBarrel 1914 1919 1,000, 250 000- 50 000 Under 50 000 Average of all The Competitive Factor in Production.—In the drUhng andproduction of oil there is a uniquecompetitive factor at work character-istic of no other substance, which hasa far-reaching effect upon the econo-mic behavior of petroleum and servesto explain its economic factor arises from the competi-tive extraction of a liquid from acommon reservoir, as exemplified inthe conditions prevailing in the aver-age oil-pool. Fig. 8, for example,represents 640 acres of oil land, where16 companies own 40 acres is by no means an exaggeratedconception, since properties of 10acres or even less are not A drills a well in the south-eastern corner of his lot, B, E, and F, must drill offset wells or suffer. Fig. 8.—Hypothetical square mileof oil-bearing territory, showingcheckerboard disposition of smallproperty holdings—the funda-mental cause of overproductionand waste.(Adapted from Requa.) 32 THE TREND OF OIL-FIELD DEVELOPMENT their property to be drained. For every corner well so drilled, threeother corner wells must be put down; and for every line well, anoffset line well must be drilled as pi-otection. In tune of over-production, operator F cannot afford to shut down, because A, B,C, G, E, I, J, or K, or any combination of them, may refuse to dolikewise, and oil in the ground of F wall be extracted from his prop-erty. Because of this condition, curtaihnent in output in practicecomes only as a result of a natural decline in the flow of producingwells. The small producer, no matter what happens, is betweenthe upper and nether millstones. He is powerless to control hisown or his neighbors production. . ^ The small property, overlying the oil-bearing res
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