This project tries to capture the social welfare gains from restrictions to landowners’ rights to sign contracts for their minerals. In this setting, welfare is comprised of well profitability and contracting outcomes, which are both shared by firms and mineral rights owners. First, to capture differences in the profitability of drilling wells, I ask whether there is production efficiency from state enforced cooperation across firms and landowners, or compulsory pooling/unitization regulatory policies. I evaluate the relative well productivity across states that do and do not have state-enforced cooperation, and estimate the differential effects to cumulative production, monthly production, and well density.
Second, I ask how does “eminent domain” affect privately negotiated contract outcomes (particularly when there is an uncertain deadline). Firms acquire mineral rights to drill a well through sequential lease negotiations; however, in Texas, a firm may be granted an exception by the state in which they no longer need full agreement from all affected landowners. I find that contracts negotiated in the “eminent domain” period are less likely to include landowner concessions, which is used to motivate a model of landowner holdouts with an uncertain deadline.