Stabilization - Review of Developments at Kettleman Hills (With Discussion)

Various chapters already written in the history of development of the North Dome of Kettleman Hills are monotonoysly identical in the one underlying' theme of conservation of oil and gas. Discovered on Oct. 4, 1928, by Milham Exploration Co. with its wildcat Elliot No. 1, the field has been subjected to practically every modern form of production restraint in the name of conservation. The record thus far developed shows that conservation was had for a time, at a price; and that unitiza-tion must be blessed by single ownership or 100 per cent participation to be effective. In fact, incomplete unitization places a heavy handicap upon its participants in the competitive development that follows. Shut-in Agreement of July 25, 1929 Not long after discovery at Kettleman but after the Continental Oil Co. and the Standard Oil Co. had completed several producing wells in the discovery group, came the so-called Shut-in Agreement negotiated at the instance of the Department of the Interior. This agreement became effective July 25, 1929. The fundamental purpose of the agreement was to prevent bringing on production of some 30 wells then being drilled and forestall a flood of Kettleman oil on the market. A cooperative scheme was developed whereby wells in the discovery group would continue to produce. Two of them could not be shut in. Drilling wells would be completed to a water shutoff in top of Temblor and operations suspended. Producing wells would contribute the value of 10 to 25 per cent of their production to the owners of suspended qualifying wells. The percentage rate of drainage contribution was left to a committee or umpire. Some acreage was not placed under the agreement. This same acreage later did not come into the Kettleman Unit Agreement. Several wells on this acreage did not contribute to the drainage fund. The total amount of oil produced during the 17 months of the shut-in agreement, by Milham, Continental and Standard from wells in the discovery group, was 5,297,262.22 bbl. The total amount paid out in "drainage" contributions was $2,046,048.18, representing sales value of 1,266,044.06 bbl. of oil.