Hazardous Business
Industry, Regulation, and the Texas Railroad Commission
The Railroads Come to Texas
The Fight for the Commission
John H. Reagan and Early Regulation
The Oil Wars
The Power Years
Other Responsibilities
The Railroad Commission Today

The Oil Wars

Page 1 2 3 4 5 6 7 8 9

The Largest Oil Field in the World

C.M. “Dad” Joiner was 71 years old, in ill health, and broke – again. The wildcatter had made and lost two fortunes in his lifetime. Now he was seeking a third. Joiner could afford only flimsy pine rigging and used tools as he drilled on Daisy Bradford’s farm near Henderson in Rusk County. On October 3, 1930, the Daisy Bradford #3 blew in.

Dad Joiner had just found the largest oil field ever discovered up to that time (the discovery would later be exceeded by gigantic fields in the Middle East and Russia). The East Texas Field was 43 miles long and five miles wide and extended into five counties: Rusk, Gregg, Upshur, Smith, and Cherokee. At its peak, this field would produce 60 percent of all Texas oil, 37 percent of the oil in the United States, and 22 percent of the oil in the world. By 1944, the field would have produced more than two billion barrels of oil.

Joiner quickly cashed out, selling most of his leases to H.L. Hunt, thus laying the foundations of the fabulous Hunt oil fortune. Thousands of small operators were galvanized by Joiner’s discovery, and a new gold rush was on. Derricks sprouted all over the field, built so closely together that a man could walk quite a distance without ever touching the ground.

Rule 37 forms for East Texas

Both the majors and the Railroad Commission recognized that the East Texas discovery had destroyed the fragile consensus they had tried to build for statewide prorationing. Humble was first to make a move, announcing that it would lay the first pipeline to East Texas and would buy equitably from all operators, provided the operators agreed to 20-acre unitization. The operators vehemently rejected the offer. There were fortunes to be made in East Texas. Even as prices plummeted from $3.50 to $1.00 to 25 cents to 5 cents a barrel, the small operators continued to sink new wells. Even as supply far outstripped Depression-era demand, they continued to produce. For these small operators, 5 cents sounded better than none. Humble withdrew its pipeline offer and began constructing private facilities for its own production only.

For its part, the Railroad Commission discovered that it was one thing to issue orders and quite another to enforce them. The earlier, limited success of prorationing had depended on the cooperation of a few major producers. Now, there were thousands of producers. Many operators simply ignored the commission’s tentative attempts to intervene in East Texas. Others filed for court injunctions to prevent the commission’s orders from taking effect.

By February 1931, a full-fledged war was underway in East Texas. Some large producers, as well as owners of leases, land, and royalties, were calling for prorationing and an end to the anarchy. They called the small operators short-sighted, selfish, and incapable of acting in the public interest. The small operators, led by Carl Estes, the crusading editor of the Tyler Daily Courier-Times, argued that what was at stake in East Texas was the sanctity of private property rights. The major companies were “pirates” who wanted to execute “every little independent operator in Texas.” And while the majors started with the most money and political clout, the small operators proved adept at advocating their own cause. Estes and former governor Dan Moody chartered a train of thirteen Pullman cars to come from East Texas to Austin to stage a well-publicized protest against the majors at a Railroad Commission hearing.

The Railroad Commission at Bay

In April 1931, the Railroad Commission acted, issuing an order limiting production to 90,000 barrels a day, allowing for a gradual increase to 130,000 barrels a day over the next several months. But Dan Moody and Carl Estes promptly secured a court injunction preventing the enforcement of the order.

Never before had the commission faced a crisis in which its inability to handle a problem could impact the entire industry and even the national economy. The chairman of the Railroad Commission, Charles V. Terrell, expressed the frustration of the commission with its impotence to deal with the events in East Texas. “It takes time to finally dispose of those cases, sometimes six months and often one to two years, so these operators who can bring suit with impunity run their wells wide open, get neighbors' oil and soon bring in water and soon ruin the field.” Indeed, it was estimated that the natural pressure in the reservoir had already been significantly damaged.

The commission simply did not have the resources to meet the challenge posed by East Texas. In the 1931 legislative session, a bill was introduced to give the commission the power to enforce market-demand prorationing, but it was defeated. The courts continued to issue injunctions and uphold the rule of capture. At Railroad Commission hearings, the Austin American-Statesman reported, “Emotion and irrationality frequently prevailed,” and meetings often degenerated into shouting and fistfights. Even when the law upheld commission decisions, operators felt free to openly defy the orders.

The old-style progressive politics that had worked for the commission for decades were now totally inadequate. There were other problems as well. It had been many years since railroad regulation was a hot issue. Once a coveted post, the office of railroad commissioner had become a ground for politicians at the end of their careers. Agency staff had once been known for their expertise and competence. In recent years, however, the jobs were allocated on the spoils system, with one-third hired by each commissioner. The commission employed only one engineer and not a single geologist. Field inspectors were poorly paid, and it was known that some were taking bribes in East Texas to look the other way on safety and physical waste. Some critics even began to talk of abolishing the agency and starting fresh with a new regulatory body.

Next >>

Page 1 2 3 4 5 6 7 8 9


Page last modified: August 18, 2011