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# HM 6 - HOMEWORK 6 Spring 2009 1 UNITIZATION THE RULE OF...

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HOMEWORK 6 Spring 2009 1. U NITIZATION & T HE R ULE OF C APTURE Explain (refer to Barnard v. Monongahela ) the rule of capture in oil and gas law? Isn’t this just a first possession rule? What is “unitization” of a petroleum reservoir and what benefits does it provide over the rule of capture? Why, historically, has this been a difficult contract to form? 2. D EPLETION UNDER THE R ULE OF C APTURE Consider an oil well owner who faces the following demand conditions and resource constraints: There are three periods (t), starting now. Q = 12 units of oil and all oil must be pumped. ( Hint: ignore the possibility that the stock is reduced. ) P = \$10 per unit each period. Interest rate = 10%. Cost of extraction: MC = 2q (from TC = q 2 ), where q = amount of oil produced each period. Because of the rule of capture you can only expect to recover 25% of output in the next period. (A) Solve the optimal depletion path for the well owner and fill in the table below.

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HM 6 - HOMEWORK 6 Spring 2009 1 UNITIZATION THE RULE OF...

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