Guardian of God's Reservoir

In the pink-and-white Crystal Ballroom of the Driskill Hotel in Austin, Texas last week, a scholarly man in rimless glasses presided methodically over a meeting of one of the most powerful regulatory bodies in the world. He was Ernest O. (for Othmer) Thompson, 61, chairman of the Texas Railroad Commission, which decides, in effect, how much oil the U.S. shall produce. After a 16-minute meeting, Thompson announced to his audience of 120 oil company lawyers: Texas wells will be allowed only 17 producing days during November.

It was the third straight monthly cutback, dropping the flow to 2,803,000 barrels a day v. 3,146,920 in August. Since there is an oil surplus, it was a safe bet that the 21 other states in the Interstate Oil Compact Commission would follow suit. Texas, producing 45% of U.S. oil, has dominated the Interstate Oil Commission since it was created by the Governors' Conference in 1935. And Thompson has dominated -the Texas commission, as well as U.S. oil conservation practices, for longer than that.

Storm Center. The Texas Railroad Commission's conservation methods have made it a storm center for two decades. There is no longer any question about the wisdom of controlling the flow of oil from any given field, in order to get as much oil as possible out of the ground (in the commission's jargon, M.E.R., for maximum efficient rate). But there are still some arguments about the commission's policy of basing its production limits on the estimated market demand. This practice, say its enemies, amounts to price-fixing.

Thompson replies: "You've never seen any shortage of oil," and argues that his chief concern is to avoid waste, not keep up prices. Once oil is brought up, some of it is lost through evaporation, handling and leakage. So says Thompson: "The best place to store oil until you need it is in God's reservoir."

Chaos in East Texas. To support his case, Thompson points to the once chaotic state of oil production and marketing. The Texas commission was set up by" a legislative act in 1891 to regulate railroad rates and transportation; soon it assumed other regulatory powers. But not much attention was paid to the state's oil reserves until 1930, when the huge East Texas oilfield blew in and upset the price structure of world petroleum.

A firm hand was needed to keep Texas from drowning in oil, and Thompson seemed the man for the job. The youngest lieutenant colonel in the A.E.F. during World War I, he returned to practice law in Amarillo and earned a reputation as a rugged in-fighter when he was elected mayor of Amarillo in 1929. When he was appointed to a vacancy on the commission in June 1932, the price of crude oil had collapsed, down from $1.10 to iof/ a barrel. Although engineers had warned that withdrawal of more than 400,000 bbls. a day would soon kill off the field (by exhausting the gas or water pressure), production was hitting more than twice that figure. Says Thompson: "There was twice as much oil as we could use . . . The creeks were full of it."

"A Magic Story." The Railroad Commission set production quotas, but was hard pressed to enforce them. Its agents were turned away from installations with shotguns. Every kind of trick was used to run off "hot oil" (over quota), including forged telegrams, tenders obtained illegally on truckloads of water, perforated valves that flowed when they seemed to be closed. Finally Thompson managed to get the whole field closed down. He tested "bottom hole pressures" on 100 wells, retested them after three weeks of inactivity. The pressure had gone up 14 Ibs. a square inch, and Thompson had a firm basis for one of his fundamental conservation principles.

Armed with a new state law which keyed production to available transportation facilities and market demand, Thompson proceeded to put sound engineering principles and thoroughgoing statistical studies to work. Today a well cannot be deepened or a dry hole plugged in

Texas without first filing a report with the commission. And fields which once "blew off" and wasted natural gas must find a use for it or shut down. Wells which were once drilled only a few feet apart are limited to one in 20 acres. The major producing companies chafe at this restriction, because Texas law gives every man the right to drill one well on his land, no matter how small the tract, and a well on one acre can draw from the same pool as a well on 20 acres alongside it. Says Thompson: "You can't deny a man his first well ... If there are any edges to cut, we give 'em to the little fellows."

Thompson, who owns two hotels, has never owned anything connected with the oil business. Like his two fellow commissioners, Olin Culberson, onetime county judge, and William J. Murray Jr., a petroleum engineer, he receives $10,000 a year for his job. He thinks the most convincing testimonial of the commission's success is the East Texas oilfield. Says he: "East Texas is a magic story. They expected one billion barrels. By limiting it to market demand, they have already produced 2.9 billion, and they will get 3 billion more out of it . . .In the old, open-flow days, we recovered only 25% to 30% of the oil in the ground. In East Texas today . . . we get up to 80% recovery."

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