In the early years of the Texas oil industry (which started booming in 1901) there wasn't much regulation.

That meant that each driller had an incentive to run his wells at full speed, maximizing his own sales but driving down the price for everyone.

Plus with oil, you can have many drillers each tapping the same pool of oil. In that case, each driller can't hold back production for later, even if he wanted to, because the oil wouldn't be there later (a rival would have pumped it all out).

Plus, all this breakneck pumping wound up ruining fields before their time--oil would be left unrecoverable in the ground.

This state of affairs was so clearly bad for drillers that in 1919 they turned to the government. They wanted output controls--each driller would get a quota that was low enough to keep prices from collapsing and would allow more complete extraction of the oil over the long term.

But no government body in Texas really had jurisdiction. The Texas Railroad Commission turned out to be the closest thing (at least it operated statewide). Even though it didn't really make sense, it made more sense than anything else.

So the TRC got responsibility for the oil and gas fields, and the oil men got the benefits of government regulation.

Some good sources here are Bryan Burrough's The Big Rich, and Theodore White's 1950s article "Texas, Land of Wealth and Fear," originally in the defunct magazine The Reporter but reprinted in Theodore H. White At Large.