The Economics of Statewide Compulsory Unitization Statutes

Abstract

The development of property regimes in the oil and gas industry is an area where the common pool problem was eliminated by state statutory intervention. This study examines the implications of economical, political and institutional factors at the state level on statutory behavior and further develops a theoretical frame work to explain the demand for statute adoption. Implications are tested against the state level data on compulsory unitization statutes, well spacing laws, neighboring state laws, oil and gas price, average farm size, federal land, party voting share and interest group presence as well as case studies. The results uncover the impact of institutional and economic forces on statute adoption provide insights on the development of property regimes in large scale natural resources. Interestingly, empirical evidence suggest that neighboring state laws, autonomous regulatory agencies and the presence of spacing laws have a positive influence on statute adoption. However, the overall results from the empirical analysis are less convincing and prevent clear interpretations of most of the variables. Finally, the case study on Texas and Oklahoma legislative history strongly supports the notion that small scale producers disfavor unitization.