Speculative Imperatives in . . .

Economic conservation of petroleum is premised on property rights necessary to speculate. However, this process is aborted by court- imposed implied covenants that govern petroleum exploitation. These legal institutions fragment property rights. Petroleum conservation is aimed at maximizing the value of continuously evolving portfolios of investments in both old and new oil fields. Developer's portfolios evolve because depletion drives up the cost of incremental development in older oil fields. Eventually, exploration and development of new fields becomes relatively more profitable. Uncertainty highlights the importance of speculation since the choice and the timing of exploration and development projects must accommodate market change. However, the implied covenants prevent delay in receipt of royalties by expediting exploration and development. Hence, royalty owners and the petroleum developers usually have mutually incompatible objectives. Unfortunately, the laws governing leasing on public lands have codified the covenants; but expedited exploration and development are defended as a means to `displace oil imports' and bolster the `domestic petroleum industry.' But these constraints raise the costs and create chaos in building and holding portfolios of petroleum leases. An integration of property rights is suggested; explorers would acquire ownership and control of reservoirs by their discoveries. Covenants would no longer prohibit speculation