The Rule of Capture and Legalized Theft

by cactus

The Rule of Capture and Legalized Theft

The rule of capture states that a resource belongs to the entity that, well, captured it, regardless of where that resource originated. In the US, it tends to apply to oil and natural gas development.

What the rule of capture implies is that if you and I are neighbors, and there’s an oil deposit underneath both our properties, if I stick a drill on my property, anything I suck out of there belongs to me. But oil (and natural gas and water) all move around, and when I extract stuff from under my property, it creates a vacuum, so that stuff that used to be under your property flows under mine. Put another way, when I extract oil or gas, some of what I’m extracting was originally under your property. Put yet another way, when I extract oil or gas, some of what I’m extracting was your property.

It gets worse… oil and gas producers typically engage in “fraccing” (hydraulic fracturing). That is, they pump a mixture of water, sand, and some noxious liquids under ground at high pressure to break the seams in which gas or oil are trapped in order to facilitate the flow of oil and gas. And that includes facilitating the flow of oil and gas from under your property to under theirs. If you’re wondering how noxious the liquids that are used for this arem a story I was following earlier this year involves a herd of cows that collapsed and died after the cows drank some fluid that spilled from a drilling operation. I imagine it would take a lot more of that liquid to kill a cow than a fourth grader.

OK… now let’s change the story a bit…. if I dig a deep and wide enough hole at the edge of our properties, stuff from your property will fall into mine. If the hole is deep and wide enough, and your house is sufficiently close to the property line, I may be able to get an awful lot of your worldly belongings to fall into a pit inside my property. Now, its pretty clear that if I pull such a stunt off, the law won’t look kindly upon me.

The same is true if we’re talking about gold deposits under ground. Assuming neither of us has sold our mineral rights, we both own whatever gold could be found under our properties. Of course, if I dug out all the gold under my property, and then proceeded to dig a big enough hole (underground) along the edge of our properties, I might just manage to get some of the gold under your property to end up under mine. But while I am no attorney, I suspect the law would not look kindly upon me if I did that.

So what is the difference? Before you think about it too much, or I provide my answer, let me hasten to add – this is not a “commons” issue. The commons are just that, the commons. They belong to everyone – that is not true of your house, or minerals underground in your land.

Now, my guess is the difference is that oil and gas flow more easily than, say, gold underground or a home above-ground. But all that means is that its harder to tell if oil or gas coming out of my pump originated under your property and hence was originally yours. As I see it, this rule countenances theft because it is difficult for anyone to spot the transition from when a specific activity doesn’t involve taking someone else’s property to when that same activity does involve seizing someone else’s property. I think its a really bad reason to forcibly assign one person’s property rights to another. I would have thought the shoe should be on the other foot, and the driller should be the one required to prove that a) they haven’t taken oil or gas that was originally under someone else’s property much less b) pumped noxious stuff under someone else’s property at high pressure. Its not impossible to do… it just requires putting an impermeable barrier between the two properties that extends deeper than oil or gas deposit. Costly? Well, yes. But the alternative to doing so is essentially theft by omission which would never be tolerated as an excuse in any other milieu.

At least, I hope it won’t be tolerated when applied to something other than oil and gas. In a world in which Goldman, Welfare, Queen & Sachs plays such a prominent role, I worry about what will happen when the folks on Wall Street learn about this and decide to start drilling around my 401-k.

Your thoughts?
by cactus