The Oil Wars
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Hot Oil: East Texas Under Martial Law
![Jacob Wolters to Ross Sterling, 1931](tnwolters-sterling-oct31.jpg)
Jacob Wolters, commander
of the National Guard force, wrote to Sterling about the
violence in East Texas |
On September 2, 1931, the Railroad Commission issued a new proration
order, limiting production to 400,000 barrels a day, with individual
wells capped at 225 barrels a day. Almost overnight, the price
of crude rose from two cents to 85 cents a barrel. But the commission’s
new rules failed to take into account acreage and well potential.
Even with the presence of the military, operators could not resist
producing above the prorationing limit. Such production was called
“hot oil,”
and bootlegging it across state lines became the stuff of legends.
Later it was learned that many Railroad Commission investigators
were paid simply to look the other way.
Sterling issued Special Order 48, which allowed violators of
prorationing to be tried in military court. But even this threat
did not deter operators from waste and civil disobedience. Valuable
and strategic resources were evaporating on a daily basis as natural
gas vented into the air. The daily loss of underground oil was
compared to a thousand burning oil wells. Observers began to compare
the situation to the 19th century destruction of the buffalo.
Humble’s William Farish said in amazement, “If an
inhabitant from Mars were to visit us, he could hardly escape
a feeling of bewilderment if not actual dismay at the manner we
earthlings carry on this great enterprise, so essential to our
convenience and welfare.”
![Survey of the "Mary Christmas" tract in East Texas, 1931](tnchristmasmap.jpg)
Merry Christmas from the
East Texas oilfields, 1931 |
J. Edgar Pew of Sun called for a rethinking of the rule
of capture. Game laws restricted hunting in the public good,
and zoning laws put limits on the use of private property. Surely
a solution could be found for the oil industry also. As things
stood, Pew said, the rule of capture was a Frankenstein’s
monster, “which bids fair to ruin its creator and destroy
a most important natural resource.”
In February 1932, a federal judge in Austin overturned Sterling’s
right to impose martial law. The governor appealed the decision
to the United States Supreme Court. In the meantime, East Texas
operators resumed full-scale production. Sterling’s troops
could try to keep the peace but were forbidden to enforce prorationing.
By this point, troop morale was suffering badly. The original
National Guard troops had been sent home, and the new troops were
inexperienced men drawn from the ranks of the unemployed. The
drama of the initial order had faded, and the public was losing
confidence in both Sterling and the Railroad Commission.
![One of the many injunctions filed against Railroad Commission orders](tnatlas.jpg)
One of the many injunctions
filed against Railroad Commission orders |
Without the troops, the Railroad Commission itself lacked the
authority to enforce its own rules. Inspectors who showed up to
try to enforce the rules found themselves met by operators with
shotguns. In 1932, court injunctions stayed all 19 of the commission’s
prorationing orders.
The Turning of the Tide
Several trends in 1932 can be seen in retrospect to make the
turning of the tide in the East Texas oil wars. First, the courts
began to look more favorably on prorationing
and regulation. In March 1932, the Texas Court of Civil Appeals
sustained prorationing in the Texas Panhandle. In May, the U.S.
Supreme Court upheld Oklahoma’s prorationing statute.
Second, the people in East Texas began to realize that the situation
had to change. Carl Estes, the crusading Tyler editor, began to
write that low prices, exhaustion of reservoir pressure, and decline
in property values were shutting out the small independents
he championed. In June, a full 90 percent of East Texas operators
signed on to ask for a reinstatement of prorationing in the area.
Finally, the Railroad Commission received an infusion of personality
and drive that would transform the agency. Governor Sterling appointed
Ernest O. Thompson, the former mayor of Amarillo, to the commission.
Thompson was a new face with no baggage from the protracted crisis.
He was known for forcing the utility companies in Amarillo to
lower their rates, even threatening to kick out the gas company
and construct a new city system from scratch if the company did
not comply. Thompson had little technical knowledge, but he understood
the political changes that had taken place in Texas. The Railroad
Commission needed to change or die. Thompson was determined that
the agency would not only survive but become a major player on
the national scene.
![Oil map of Caldwell and Guadalupe counties, 1932](tncaldwell-guadalupe-oil.jpg)
Oil fields of Caldwell and
Guadalupe Counties, 1932 |
In the fall, overproduction was once again driving the price
of crude down near 30 cents a barrel. With the full support of
many East Texans, the Railroad Commission issued a new order lowering
the allowable in the region. Once again, the federal court struck
down the order, leaving the commission helpless to enforce prorationing.
In Tyler, 1500 oil-men met to protest the decision, saying it
would “plunge [Texas] back into the economic pit of despair.”
The oil-men petitioned Sterling to call a special session of the
legislature to rewrite Texas law. They wanted strong conservation
with adequate enforcement. It was a 180-degree turnaround from
the previous year.
The legislature met in November in a session that would prove
both chaotic and confrontational. Sterling called for the legislature
to protect the state’s revenues. Texas now produced oil
at twice the value of its cotton crop. Oil affected the livelihood
of banks, merchants, and other businesses, and the state derived
more than one-half of its income from petroleum taxes. Railroad
Commission chairman Charles V. Terrell testified that court rulings
were destroying the East Texas Field; shrewdly, he reminded the
legislature that if the Railroad Commission was not allowed to
determine the levels to meet market demand, “someone in
New York” would.
!["Come on, men, let's stop this leak!"](tnsterling-cartoon-32.jpg)
"Come on, men, let's
stop this leak!" |
In the end, the Market Demand Act was passed and gave the Railroad
Commission the authority to prorate, or set the rate at which
every well in Texas could produce. Governor Sterling declared,
“From now on, there will be none [oil and gas] taken without
the consent of the state.” Major
firms and independents supported the law. The commission immediately
issued new orders based on well potential, acreage, and field
pressure. Prices rose from 10 cents to 85 cents a barrel.
The situation began to stabilize. The breathing room gave both
producers and the commission time to gain a better understanding
of the geology that underlay the field’s potential. Adherence
to prorationing in East Texas and elsewhere began to restore legitimacy
to the Railroad Commission. In December, the commission held its
first public hearing in months not marked by demonstrations, shouting,
and rowdiness.
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