The Prize: The Epic Quest for Oil, Money, and Power

by Daniel Yergin

But, most important in shaping the legal context of American oil production, and the very structure of the industry from the earliest days, was the “rule of capture,” a doctrine based on English common law. If a game animal or bird from one estate migrated to another, the owner of the latter estate was perfectly within his rights to kill the game on his land. Similarly, owners of land had the right to draw out whatever wealth lay beneath it; for, as one English judge had ruled, no one could be sure of what was actually going on “through these hidden veins of the earth.” As applied to oil production, the rule of capture meant that the various surface owners atop a common pool could take all the oil they could get, even if they disproportionately drained the pool or reduced the output of nearby wells and neighboring producers. Inevitably, therefore, the owners of adjacent wells were in heated competition to produce as much as they could as swiftly as possible, to avoid having the pool drained by another. The impetus to rapid production contributed to the instability of both production and prices. Oil was not the same as game birds, and the rule of capture led to considerable waste and damage, to the detriment of ultimate production from a given pool. But there was another side to the rule’s effects. It created room for many more people to enter the industry and to master the required skills than would have been the case under more restrictive rules. And, by building up produ...