During this second year of our MMS funding, we continued our study of how federal, state, and local governments acted to structure and modify the twentieth-century California oil economy. Our study focuses on public land policy, tax policy, the regulation of oil production, and public investment in transportation infrastructure. By studying these four ways that governments helped construct a California oil market, we aim to improve future oil policy by enhancing our understanding of the role government and politics play in the petroleum economy. At the same time, we seek to illuminate more generally aspects of American governance of natural resource development and patterns of government intervention in the economy.

Following our initial year of intensive primary research, we used much of our second project year to process our amassed research materials and to begin to write up our research findings. The writing has moved relatively quickly. We have now drafted an introductory section, a chapter on federal oil lands in the San Joaquin Valley, and extended portions of chapters on state petroleum lands and efforts to regulate the overproduction of oil in the 1930s.

Although we are still in the midst of our research and writing, we can describe some of the work that we have completed and indicate our next steps. Our first chapter on federal public lands examines the transition from the nineteenth-century practice of alienating the public domain to the twentieth-century leasing system. Relying on a wide range of documents, many of which have not previously been used, we explore the fates of individual companies caught up in the transition between two federal property regimes. We also detail the efforts made by California politicians and industry lawyers to influence the new federal leasing legislation, which ultimately became the Mineral Leasing Act of 1920.

The tools of legal history allow us to analyze the protracted litigation that accompanied the federal government's shift from land alienation to leasing. These suits involved petroleum lands ultimately worth billions of dollars and they targeted the Southern Pacific Railroad Company, Standard Oil, and other major oil companies. At stake in the legal struggles was how petroleum moved from federal lands in the San Joaquin valley onto the California oil market. Under what social and environmental condition would petroleum be produced? Who would profit from the rich deposits of the public domain? This struggle would structure many aspects of the production process. It also helped set the parameters for future federal leasing of public oil lands off the California coast.

In our second chapter on state and local oil lands, we consider the political struggle that ensued when the center of oil activity shifted away from the San Joaquin Valley. Beginning with the 1921 California Mineral Leasing Act, we trace state and local political conflicts over petroleum development in California's coastal towns and tidelands. We pay particular attention to the tension between recreational and industrial uses of the coastal zone. The ascendant real estate and recreational sector confronted the oil industry in a protracted and complicated political and legal conflict.

The political struggles that took place in the state legislature, state courts, and local governments illustrate the continuing power of federalism in the American political system. State politics and law followed an altogether different trajectory than at the federal level. In our study of state and local governance of oil lands, we examine the many state court decisions that determined who controlled petroleum deposits and who would determine how the oil would be developed. These decisions influenced the pace of oil development, the distribution of royalties, and the specifications under which the work would be carried out. We also trace the political developments leading from the passage of the 1921 state leasing act to the 1938 formation of the California State Lands Commission, the agency responsible for managing and leasing state-owned oil lands.

By necessity, we devote considerable attention to the major political figures of the time. Governors Frank Merriam and Culbert Olson vied to control the oil issue. Olson rose to gubernatorial office partly on the basis of his investigation of the illegal tapping of the state's Huntington Beach oil field. Olson's idealistic effort to protect the public interest in oil resources, and his determination, in the face of considerable opposition, to ensure a full investigation of the Huntington Beach situation, brings forth many central issues in state lands policy. How effective is the initiative and referendum process in establishing a sound policy for state oil lands? Which political pressures drive state legislative action regarding petroleum lands? How should the state resolve the conflict between protecting beaches and maximizing public revenues from state-owned petroleum in coastal lands? What kind of confidentiality protections should the State's Division of Oil and Gas provide to companies whose drilling activities are being investigated?

The disputes over federal lands in the San Joaquin Valley and over state lands on the California coast helped create the framework within which the federal government would enter into offshore oil leasing after World War II. The legal and political conflicts also structured the management of state lands in the post-war period. In both instances, state and federal governments actively shaped the property regime under which oil would be produced in California.

The active, shaping role of government extended into state and federal conservation programs in the 1920s and 1930s. Environmental and economic regulation overlapped, with conservation intended to stabilize and bolster the oil industry financially as much as to eliminate the waste of scarce natural resources. This mixture of economic and environmental concerns made conservation programs complex and politically controversial. Drilling restrictions reduced production generally, but they also prevented specific individuals from extracting oil from their property. Major court struggles and some of the most expensive initiative battles in California history sent this regulation of production veering awkwardly through the 1930s.

Government officials and industry associations cautiously pursued their contradictory mandate: curtail oil production in order to maintain oil prices even while rewarding new oil exploration and development. To freshly analyze efforts to control the wild tendencies of the 1930s oil economy, we rely on previously unused records of public and industry conservation groups. Internal correspondence of industry coordinating committees reveal tensions between major and independent producers, as well as the industry's ambivalence towards direct government regulation of production. California's government and oil industry never succeeded in their 1920s and 1930s efforts to reduce waste and restrain the overproduction of oil. Rather, rising consumer demand for oil and the fuel requirements of the war effort cut into the excess production. At the same time, many of California's formerly flush fields declined substantially.

Our study of oil and gas regulation in California during the 1920s and 1930s provides the first extended historical analysis of this crucial period in the state's oil history. California's effort to address the problem of overproduction yielded strikingly different results than in other oil-producing states such as Oklahoma, Texas and Louisiana. Where those states took bold steps to institute state controls over oil production, forceful opposition and dissent in California prevented such measures. To understand the reasons for California's distinct path and its subsequent consequences for the state's oil sector, we examine the many efforts to regulate the industry's production practices, including California's 1929 measure to control natural gas wastage and the defeated

Sharkey and Atkinson oil control bills (both of which sought to establish state oil and gas commissions to regulate production). In the 1950s, the California Legislature and a faction of the state oil industry would again try to establish an institutional mechanism to rationalize oil production, but opponents defeated this effort as well.

At the present time, we continue to process and synthesize the materials that we have collected during the past two years. We have largely completed these three sections on federal and state lands and on the effort to regulate oil production. We have also made significant headway in our research on the development of the California highway system and the role of tax policy in the oil sector. During the coming year we will continue to integrate our research findings into extended analyses of the political and legal dimensions of the California oil economy. By May 1999, we anticipate that the graduate researcher, Paul Sabin, will complete his dissertation on the politics and policies shaping the California oil economy.

Even as we move forward with our writing program, our research effort also continues. Because of our need to work with the materials collected during our first project year before we could arrange subsequent research, we deferred several major research trips into the upcoming fiscal year. We have requested a no-cost extension from the Minerals Management Service to allow us to use our field research budget for this work. The extension will enable us to work with Interior and Justice Department records in Washington, D.C. during the summer of 1998. It will also allow us to continue necessary work in the regional archives in Los Angeles and the state archives in Sacramento.

Additional Activities: In addition to our writing this past year, we continued some of our research activities. At the outset of our second year of funding, the graduate researcher completed his six week research trip to the Los Angeles area, where he worked in manuscript collections of the Huntington Library, examined petroleum-related ordinances in Los Angeles City Council records, and investigated the holdings of the Long Beach Public Library.

Following our Los Angeles research expedition, we surveyed the literature on federal income taxation, searching particularly for legal rulings establishing Internal Revenue Service policies on tax exemptions and deductions for drilling expenses and depletion. We also studied legal conflicts over tideland oil drilling. We looked closely at the different actions taken by public and private entities to respond to the trespass of slanted-well drilling, most prominently in the Huntington Beach field.

During October the graduate researcher returned to Los Angeles for two weeks to continue work in Southern California regional archives. He investigated the history of oil production controls and the impact of federal tax policies on oil company investment practices. In January 1998, the graduate researcher worked for three weeks in the California State Archives, the northern regional branch of the national archives, and the Bancroft Library. He studied federal management of the public oil lands, state administration of the California tidelands, and Governor Merriam's oil initiatives.

In June 1998, the graduate researcher spent two and a half weeks working in regional archives in the San Francisco Bay Area and in the California State Archives in Sacramento. He examined the records of the State Attorney General to understand the state's strategy and goals during legal conflicts over public lands and oil production controls. He also probed the records of the State Land Commission to study California's oil land development program.