**2.1.3 Shortage fears, precautionary action and regulation**

The idea of ring-fencing strategic natural resources away from commercial usage by placing them under the management of the federal state had been enacted by the Amendment to the Land Revision Act of 1891. Though this, the U.S. Senate recognized the President's authority to establish forest reserves by proclamation, leading to the constitution of a non-market sector removed from lands that would otherwise be available. However, it was only during Theodore Roosevelt's presidency that the purchase of Western and even Eastern lands shot up and leading to the founding of a Federal reserve of 150.8 million acres embracing 159 forests and extending over 27% of the U.S. forested extent (Hays, 1959; *Brown, 1919:3-7).*  Nevertheless, the more Roosevelt's policy moved towards public ownership, the more Congress responded with hostility towards conservation and bowed to local commercial pressures for quicker private sector exploitation. The clash came to a head in 1907 when Congress forbade the creation of more forest reserves in Western states in arguing that the creation of public property and environmental concerns were just a means to expand presidential authority (Penick, 1968).

Under these circumstances, it would be mightily hard to transpose the recipe for public forest ownership onto the oil realm. All the more so when the geological warning about forthcoming depletion was clearly offset by the intuitive evidence of prices, driven down to an average of \$70 cents for the 42-gallon barrel (Williamson, 1968:38-39). Inasmuch as the current evidence ran counter to the geological forecast, there was a kind of pathological split in public opinion. However, against all odds, a small but influential group of oil geologists backed by the director of the U.S. Geological Service, George Otis Smith, was able to circumvent opposition and carve a federal oil reserve through the withdrawal of Californian public lands, and their subsequent conversion to supply the navy. Working behind the scenes and taking advantage of consolidated intra-governmental networks, geologists were able to seize the opportunity that came about in California, firstly by withdrawing prime oil land from the agricultural register, and then by switching its usage to public property. As a result, in September 1909, roughly three million acres of oil-rich lands became the future Naval Petroleum Reserves (Shulman, 2003). This pro-active course of events was particularly significant because when the breakthrough decision was made, the Navy

Estimating Oil Reserves: History and Methods 149

movements through the strata. (Mills & Wells, 1919: 30). This would later be summed up in the principle that the level of maturation of the organic matter, through which lighter gas hydrocarbons are generated (methane, ethane, propane, butanes), increases

In addition to natural conditions, human-made intervention plays no less a role in the reservoir pressure level. It was particularly the spacing of wells and the pace of oil extraction that captured the attention of geologists and public authorities. Industrial practices once tolerated henceforth came under close scrutiny (Requa, 1918). The threat of depletion and the harbingered scarcity brought into the spotlight practices like allowing gas to issue freely from open wells or gas flaring, which both contributed to abnormal decreases in reservoir pressure, and subsequently forbidden in several states. The legal framework for property rights known as the "rule of capture" was also criticized as a source of waste. Applied to oil fields, the rule of capture meant the owners of land atop a common pool could take as much oil as they wanted even when unduly draining the pool and reducing the output of nearby wells. This process meant everyone was in harsh competition to extract as much and as swiftly as they could. The ensuing haste and dense well spacing led to a steady drop in reservoir pressure with an inherent reduction in the volume of oil able to be brought to the surface during the exploration life-cycle. Contemporaries estimated that as much as half of the petroleum in U.S. reservoirs remained underground after the fields ceased to yield. This value was later corrected to between 75% and 65% and finally settling on 60%, and interpreted as a regrettable dissipation of national resources. (Emmons, 1921:184; McLaughin,1939:127; Schurr & Netschert, 1977:357-358). Ultimately, the amount of oil reserves could grow simply by improving the oil-recovery factor. However, to achieve this goal, production had to be

Stirred by eager conservationist exposés, petroleum shortage forecasts made good copy in popular periodicals and provided appealing headlines. Soon, the basic principles of conservation made their way into Oklahoma state through the institution of pro-rationing among the wells, control over storage and transportation facilities and restrictions over the subsurface waste that caused pressure depletion (1913 and 1915, albeit with few practical consequences). Later on, Texas and Kansas followed in the footsteps of the Oklahoma regulations. With American participation in World War I, conservationism was temporarily diverted from its inward regulatory drive and oriented towards government-business cooperation. The rapprochement stems from the idea that U.S. shortages would have to be met by acquiring foreign oil lands and by taking a more aggressive stance in support of

To conclude this section, the first oil survey was framed by the necessity to present data on the conservation of natural resources so that the final figures released matched the pattern of a readily quantifiable total. Owing to the usage of expedient methodologies, tested in scattered oil-pools, inferences from volumetric parameters and inferences from historical record of production were aggregated into national forecasts. In this manner, the amount determined, 15 billion oil barrels left in "reserve" represented a menace to the future. Geologists looked at the glass as if half empty rather than half full. It suffices to point out that if the amount accrued by new discoveries (plus revision of the previously found and now recoverable petroleum), exceeded the amount of oil extracted from

exponentially with temperature and linearly over time.

more efficient, more science based and more regulated.

corporate interests abroad (*Nordhauser,* 1979; Clark, 1987).

remained undecided over which battle ship types should be fully converted to fuel oil. Equally, the usurpation of private ownership arrayed the opposition of the most significant sectors of the petroleum industry (Olien & Olien, 1993:49-50).

Aside from the shift in natural resource property rights, the first oil survey also set in motion unprecedented appeals for regulation, on behalf of saving the threatened liquid fossil fuel reserves. Geologists and public authorities repeatedly asserted that consumption should be constrained. This was particularly true in the righteous domain of automobile driving, which should be restricted to unavoidable work-related activities such as making deliveries, transporting doctors, transporting children, guaranteeing public order and easing the life of isolated farmers. Beyond this array of utilitarian functions stood nothing less than the hedonistic usage of cars "for pleasure", a social behavior increasingly targeted not only by conservationist writings but also by articles published in specialist magazines like "Motor", "The Motor Age" or the "Oil & Gas Journal". As the chief geologist of the U.S. Geological Service put it in an interview that addressed the danger of exhaustion: "the use of pleasure cars is growing beyond comprehension" (White, 1919; see also McCarthy, 2001).

More telling was the attempt to regulate the industry from the supply side, where sizable wastes were deemed to occur. Scarcity implied the rationalization of exploration. By the close of the nineteenth century, experts in scientific forestry had discovered the potential clash between the needs of common management of natural resources and the economic system of separate ownership and private appropriation. The discovery of the problem of ecological commonalities (indivisibility, interdependency, sustainability) had the effect of pushing the state into previously excluded areas asserting the importance of expert knowledge, norms and regulations. In fact, it might be said that the ascension of professional scientific groups came with the territory.

Although the oil industry long knew about the tremendous waste involved in legendary oil rushes and town-lot developments like the Sindletop oil-field of Texas or the Breman oil-field of Ohio, the explanation for the harmful outcome boiled down to the reckless behavior of adventurers, real-estate speculators and wildcatters. It was only by the close of the First World War that the issue of waste came to be perceived less in terms of economic greed and more in terms of the geologic preservation of reservoir indivisibility, interdependency and sustainability. What transformed the reservoir into an ecological commonality was the understanding of the bond between gas pressure and oil recovery: since the pressure of gas forced oil out of the rocks into the wells, pressure turns into a matter of great economic interest. One of the most influential manuals on oil geology summed up petroleum extraction as a two-step process in which the bore becomes gradually filled with oil, accumulating gas below, until the pressure is sufficient to cause the oil to overflow. Then, as the oil flows to the casing head, pressure is relieved allowing the gas to expand suddenly and to rise up the column with force (Emmons, 1921:184). Doubts still remained as to whether any increase in temperature, in accordance with the deeper burial of organic sediments, would linearly accelerate the process of gas formation leading to an overall increase in pressure. As a general principle, it was accepted that deeper reservoirs would return higher pressures; but geologists also pointed out, cautiously, that "rock pressure" was driven by an array of factors that acted over time: hydrostatic pressure; weight of superincumbent strata; rock movements; deep-seated thermal conditions; long-continued formation of natural gases; and the resistance to fluid

remained undecided over which battle ship types should be fully converted to fuel oil. Equally, the usurpation of private ownership arrayed the opposition of the most significant

Aside from the shift in natural resource property rights, the first oil survey also set in motion unprecedented appeals for regulation, on behalf of saving the threatened liquid fossil fuel reserves. Geologists and public authorities repeatedly asserted that consumption should be constrained. This was particularly true in the righteous domain of automobile driving, which should be restricted to unavoidable work-related activities such as making deliveries, transporting doctors, transporting children, guaranteeing public order and easing the life of isolated farmers. Beyond this array of utilitarian functions stood nothing less than the hedonistic usage of cars "for pleasure", a social behavior increasingly targeted not only by conservationist writings but also by articles published in specialist magazines like "Motor", "The Motor Age" or the "Oil & Gas Journal". As the chief geologist of the U.S. Geological Service put it in an interview that addressed the danger of exhaustion: "the use of pleasure cars is growing beyond comprehension" (White, 1919; see also McCarthy, 2001). More telling was the attempt to regulate the industry from the supply side, where sizable wastes were deemed to occur. Scarcity implied the rationalization of exploration. By the close of the nineteenth century, experts in scientific forestry had discovered the potential clash between the needs of common management of natural resources and the economic system of separate ownership and private appropriation. The discovery of the problem of ecological commonalities (indivisibility, interdependency, sustainability) had the effect of pushing the state into previously excluded areas asserting the importance of expert knowledge, norms and regulations. In fact, it might be said that the ascension of

Although the oil industry long knew about the tremendous waste involved in legendary oil rushes and town-lot developments like the Sindletop oil-field of Texas or the Breman oil-field of Ohio, the explanation for the harmful outcome boiled down to the reckless behavior of adventurers, real-estate speculators and wildcatters. It was only by the close of the First World War that the issue of waste came to be perceived less in terms of economic greed and more in terms of the geologic preservation of reservoir indivisibility, interdependency and sustainability. What transformed the reservoir into an ecological commonality was the understanding of the bond between gas pressure and oil recovery: since the pressure of gas forced oil out of the rocks into the wells, pressure turns into a matter of great economic interest. One of the most influential manuals on oil geology summed up petroleum extraction as a two-step process in which the bore becomes gradually filled with oil, accumulating gas below, until the pressure is sufficient to cause the oil to overflow. Then, as the oil flows to the casing head, pressure is relieved allowing the gas to expand suddenly and to rise up the column with force (Emmons, 1921:184). Doubts still remained as to whether any increase in temperature, in accordance with the deeper burial of organic sediments, would linearly accelerate the process of gas formation leading to an overall increase in pressure. As a general principle, it was accepted that deeper reservoirs would return higher pressures; but geologists also pointed out, cautiously, that "rock pressure" was driven by an array of factors that acted over time: hydrostatic pressure; weight of superincumbent strata; rock movements; deep-seated thermal conditions; long-continued formation of natural gases; and the resistance to fluid

sectors of the petroleum industry (Olien & Olien, 1993:49-50).

professional scientific groups came with the territory.

movements through the strata. (Mills & Wells, 1919: 30). This would later be summed up in the principle that the level of maturation of the organic matter, through which lighter gas hydrocarbons are generated (methane, ethane, propane, butanes), increases exponentially with temperature and linearly over time.

In addition to natural conditions, human-made intervention plays no less a role in the reservoir pressure level. It was particularly the spacing of wells and the pace of oil extraction that captured the attention of geologists and public authorities. Industrial practices once tolerated henceforth came under close scrutiny (Requa, 1918). The threat of depletion and the harbingered scarcity brought into the spotlight practices like allowing gas to issue freely from open wells or gas flaring, which both contributed to abnormal decreases in reservoir pressure, and subsequently forbidden in several states. The legal framework for property rights known as the "rule of capture" was also criticized as a source of waste. Applied to oil fields, the rule of capture meant the owners of land atop a common pool could take as much oil as they wanted even when unduly draining the pool and reducing the output of nearby wells. This process meant everyone was in harsh competition to extract as much and as swiftly as they could. The ensuing haste and dense well spacing led to a steady drop in reservoir pressure with an inherent reduction in the volume of oil able to be brought to the surface during the exploration life-cycle. Contemporaries estimated that as much as half of the petroleum in U.S. reservoirs remained underground after the fields ceased to yield. This value was later corrected to between 75% and 65% and finally settling on 60%, and interpreted as a regrettable dissipation of national resources. (Emmons, 1921:184; McLaughin,1939:127; Schurr & Netschert, 1977:357-358). Ultimately, the amount of oil reserves could grow simply by improving the oil-recovery factor. However, to achieve this goal, production had to be more efficient, more science based and more regulated.

Stirred by eager conservationist exposés, petroleum shortage forecasts made good copy in popular periodicals and provided appealing headlines. Soon, the basic principles of conservation made their way into Oklahoma state through the institution of pro-rationing among the wells, control over storage and transportation facilities and restrictions over the subsurface waste that caused pressure depletion (1913 and 1915, albeit with few practical consequences). Later on, Texas and Kansas followed in the footsteps of the Oklahoma regulations. With American participation in World War I, conservationism was temporarily diverted from its inward regulatory drive and oriented towards government-business cooperation. The rapprochement stems from the idea that U.S. shortages would have to be met by acquiring foreign oil lands and by taking a more aggressive stance in support of corporate interests abroad (*Nordhauser,* 1979; Clark, 1987).

To conclude this section, the first oil survey was framed by the necessity to present data on the conservation of natural resources so that the final figures released matched the pattern of a readily quantifiable total. Owing to the usage of expedient methodologies, tested in scattered oil-pools, inferences from volumetric parameters and inferences from historical record of production were aggregated into national forecasts. In this manner, the amount determined, 15 billion oil barrels left in "reserve" represented a menace to the future. Geologists looked at the glass as if half empty rather than half full. It suffices to point out that if the amount accrued by new discoveries (plus revision of the previously found and now recoverable petroleum), exceeded the amount of oil extracted from

Estimating Oil Reserves: History and Methods 151

Insofar as oil reserves were equated as fixed assets, the depletion of reservoirs could somehow be thought of as the depletion of a non-renewable forest. The geological survey thus became a contentious issue that carved a trench between the business view of a drifting amount determined by new discoveries and the official view of a fixed amount determined by the already confirmed oil reservoirs. Hence, the stage was set for a public confrontation between those who claimed "a petroleum famine is imminent" and those who countervailed with "there will always be enough petroleum to meet demand"

Henceforth, the surveys were clouded by the suspicion that the conservative nature of the forecasts set the tone for those who argued in favor of government interference through regulation, pro-rationing, production controls, waste-disposal or even – the rumors persisted - partial nationalization. In an attempt to calm these troubled waters, in 1922 the U.S. Geological Survey (USGS) mobilized ten geologists representing the American Association of Petroleum Geologists and six from the USGS for a comprehensive and accurate study aimed at once and for all stemming the controversies and bringing the debate back to indisputably geological grounds. For the first time, the distinction between known fields and undiscovered reservoirs was acknowledged. The oilman's view of exhaustiondiscovery cycles was translated into probabilistic categorizations that accounted for "prospective" and "possible" oil. The concluding estimate identified 5 billion (5 x109) barrels of crude "in sight" and an additional 4 billion barrels as "prospective" and "possible". The former was judged "reasonably reliable" with the latter deemed absolutely "speculative and hazardous". In the end, neither the enhanced accuracy of petroleum in sight nor the acknowledgment of "speculative" discoveries reassured the industry. On the contrary, the enduring politicization of the geological survey opened the door to the institutionalization of competing reports on petroleum reserves sponsored by the government, by specialized reviews (*Oil & Gas Journal, Oil Weekly*), and by the American Petroleum Institute business association. From 1922 onwards, this pluralism of estimates became the rule: each vested interest, each major institution produced its own forecasts. Maybe the surprising issue in this evolution towards customized surveys is that there were hardly any discrepancies in the final figures of proven reserves, although that did not halt public and private bickering

The crux of the matter was naturally the amount of oil still undiscovered. In this regard, the uncertainty could hardly be solved. There were bold stands on the subject but little means to figure out a reasonable and acceptable forecast. As regards finding oil, geological knowledge had limited utility: it could forecast where oil was not supposed to be found (for instance in rocks dating from the Jurassic, Permian and Silurian Eras) and it could provide some advice on defining areas worth exploring (areas of extensive limestone dolomization, salt domes or beds of porous sandstone lying within shales) (Johnson & Huntley, 1916; Bacon & Hamor, 1916). Nevertheless, the only way to be certain about oil reserves was to drill; as an experienced field-worker reported: "geologists have gone deeply into the matter and in a way seem to be able to select oil producing territory. But they are not infallible. A

Up to the First World War, all geological knowledge was in fact exclusively based on surface indicators providing a vague clue as to the location of underground reservoirs. Throughout the U.S., the most reliable signal for the oil prospector was the localization of natural eruptions

hole in the ground seems to be the only sure test" (Horlacher, 1929:24).

(Garfias & Whetsel, 1936:213).

between institutions (Dennis, 1985).

existing fields, the results would have shown a net increase in the volume of reserves. Indeed, as long as this situation lasted, the deadline for depletion would be extended rather than shortened. It was precisely this type of knowledge deriving from the business dynamic of discovery-exhaustion-new discovery that the 1909 geological survey failed to take into account (Olien & Olien, 1993).

Important as this logical viewpoint may be, the fact is the rate of discovery did slow considerably just after the survey's publication. The 1910s was a decade of "dry" wells, rising prices and new discoveries falling short of replacement needs. National Petroleum News, the journal of the independent oilmen, reported in 1913 that "during the past years the prospector has gone over the country with the drill, selecting the most favorable locations, and has not in a single instance been rewarded with a barrel of commercial oil, outside of what is generally accepted as the proven area" (Dunham,1913). Because compensation for growing demand barely occurred, the balance between withdrawals and additions to petroleum reserves moved the countdown of the time elapsing until exhaustion from 17 years (1918-1919 surveys), 13-15 years (1921-1922 surveys) and 6-10 years (1923-1925 surveys) (McLaughin,1939: 128-129; Clark, 1987:148).

This course of events definitely leaned towards the interests and the views of conservationists and geologists.
