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Show of production has frequently been attacked because it is allegedly a system of price fixing by the state. However, the courts have sustained the systems on the ground that they serve a legitimate conservation purpose, even though they may have an incidental effect on prices.8 Furthermore, recognition of prorationing as a conservation system has been given by Congress in its consent to the Interstate Oil Compact to Conserve Oil and Gas, first approved in 1935 and extended 10 times, and in the Connally Act9 which prohibits the interstate transportation of oil produced in excess of allowables fixed by state regulation. Among the coastal states, Louisiana and Texas, dominant domestic oil-producing states, both have market demand prorationing systems. Most, if not all, of the producing states regulate well spacing as a conservation measure, and the Federal Government also regulates the spacing of wells on the Shelf. This type of regulation does have an effect on the rate of production from a given reservoir, although neither as direct nor as limiting as that of pro-rationing. In 1956, the Federal Government and the State of Louisiana entered into an agreement to permit oil and gas exploration and production offshore Louisiana during the pendency of litigation over the state's coastal boundary. At the same time, a tacit agreement was reached under which the Federal lessees off Louisiana are required to comply with state conservation regulations. Similar procedures have been applied to areas off the coast of Texas. Consistent with our basic recommendation that complete authority of all activities of the Outer Continental Shelf should continue to be vested by statute in the Federal Government, we recommend that, in the interest of conservation, the Federal Government promulgate and administer its own rules for controlling the rate of production from Outer Continental Shelf oil and gas fields. In this connection, we note that in January 1967, the Secretary of the Interior announced his intention to promulgate rules for the regulation of oil and gas production from the Shelf, including independent prorationing.10 The announcement has never been implemented, and the Commission urges that it be done. market demand factor which restricts the allowable production to a level equal to the estimated demand at the prevailing price. The theory supporting this system is that a stable market will encourage orderly production of oil and avoid economic pressures to maximize production over the short term. s See Champlin Refining Co. v. Corporation Commission of Oklahoma, 286 U. S. 210 (1932). 9 15 U.S.C. §§ 715-715L (1964), as amended, (Supp. V, 1970). 10 32 Fed. Reg. 95. OUTER CONTINENTAL SHELF CRUDE OIL PRODUCTION AS A PERCENTAGE OF TOTAL U.S. CRUDE PRODUCTION 1953 1955 Crude oil from the Outer Continental Shelf is contributing an increasing proportion of total U. S. production. Coordination with the States Throughout our deliberations, there was a strong sense of need for coordination between the Federal Government and the affected states. This concern is reiterated in many parts of this report. While asserting the need for Federal conservation control of the Outer Continental Shelf, we recognize that there must be close coordination between the Federal Government and the adjacent states. Any limitations proposed by adjacent states should be taken into consideration by the Federal Government in determining the amount of production allowable from wells on Federal leases. But, state production regulations have been developed from data related to dry land and shallow tidewater operations. As Outer Continental Shelf production moves into deeper waters, economic and technical comparability between state production, which is in shallow waters or on dry land, and deep water production becomes more remote. At some point, it becomes doubtful that it will be in the interest of the Federal Government or the lessee to require compliance with state allowables. Therefore, the Federal Government should have an independent, flexible system of allowables to meet the variety of conditions which may be experienced. 189 |