*1 tory authority Railroad authorizing the price fix the where

Commission to producer pipeline company can- agree upon price.

not frequently involved, oil there is

Where field; posted price oil for the pipe- require

it is not unreasonable same company to take the

line oil far “posted price.” So

field at the uniform posted know, however,

as I there is no

price price paid for gas, subject private con- has been the

tract.

Perhaps it Commis- is desirable for the power; perhaps

sion to have this

would be Texas Railroad desirable deal with have the

Commission to Interstate

these intrastate matters in interstate

Commerce Commission has But the Commis-

transactions.' Railroad powers

sion delegated has those

Legislature. my opinion, Legisla- fixing

ture has .the prices by cir- the Commission under the present,

cumstances here not au- and has compel

thorized the Commission

company price to take the at the fixed

by it. al.,

RAILROAD COMMISSION of Texas et Appellants,

WOODS EXPLORATION AND PRODUC- COMPANY, Inc., al., Appellees. ING et

No. A-10825.

Supreme Court of Texas.

June

Rehearing July 27, 1966. Denied *2 America,

Company Tex.Sup., of In the case it was held that 94. second precluded by large operators tract were the ½- n lapse attacking of time from formula established the Commission Field, even allocating from the though of allowed the use the formula drain substantial wells on small tracts to quantities larger units. Alumi- Railroad Commission of Texas America, Tex.Sup., 380 Company num question be decided 599. The S.W.2d may, for is whether the now rights, purpose protecting ceiling monthly on the allow- establish a able from a reservoir. to be Vinson, Elkins, Searls, Weems & James Allison, Houston, Jr., Leroy Jeffers, E. and 2-53,009 By Special dated Order No. Winters, Clark, Thomas, Harris, Denius & 1, 1965, pre- February the Commission Carr, Austin, Keahey, Waggoner H. James scribed a formula be used determin- Gen., Austin, Atty. Linward Shivers ing de- the maximum reasonable market Gen., Snow, Attys. Jr., C. L. Asst. Appling in the mand for five reservoirs appellants. by Woods Field. suit was instituted Exploration Inc. al. Producing et & Werkenthin, Austin, Herring Miller & va- against the Commission to test Walker, Able, Hous- B. Levert J. Jr. lidity enjoin its enforce- of the order and ton, York, McAllen, Price William E. are ment. Ben Novak and others who Daniel, Austin, appellees. interested in tract wells intervened small Company plaintiffs, while Aluminum WALKER, Justice. operators large of America and other tract op- controversy This is another between aligned intervened and themselves large erators with tracts wells qn trial court the Commission. After those on small with wells tracts summary judgment rendered in favor Gas Field Calhoun Jack- invalid plaintiffs, declaring the order par- Substantially son the same Counties. from enforc- enjoining previous ties have been before us on two same, large occasions. In the first case it was held appeal operators prosecuted direct tract a vertically separated res- that each of the by Article as authorized to this Court underlying ervoirs Field was to 1738a.1 separate in deter- considered as a exception. question presented for decision mining right a Rule 37 tq narrow, relatively but a rather full state- Railroad Commission The action of the understanding operator make allowing small tract ment is to an single parties. Sec- multiple completions contentions made from a property provides under her tion 12 of Article 6008 bore sands monthly though production from shall fix allowable upheld, even produced from reservoir her to re- one would have enabled sand quantity gas under demand therefor “at the lawful market cover more than produced from can be v. Aluminum at the volume that her land. Benz-Stoddard they appear in Vernon’s under which are referred to the article number All statutes Annotated Texas Civil Statutes. formula, waste, well thus receives without whichever allocation such reservoir produced provided quantity.” directs share of the then its fair is the smaller capable producing their al- monthly all wells are incapable producing A well among the wells entitled lowables. allocated normally be give each as reservoir so as to the allowable that would duce from the *3 pro- capacity signed limited well of to to is known as a its fair share the pro duced, proviso prevailing well shall Commission the each well. Under that cedures, assigned that are capacity the of limited wells to amount restricted produce, they These and can can the maximum allowables without waste. ad- will be remainder the allowables provisions other of Article 6008 opinion. in this otherwise to receive are verted to later would be entitled field.2 This other in the allocated to wells procedure fixing month- The usual the by the brings problem dealt with us to ly gas is set out allowable for a reservoir Order Special No. its Rule Statewide 31. Under 2-53,009. any of dispute There is as to no ordinarily demand deter- visions market is not involved in the material facts. Waste Producers’ primarily on the mined basis case, the and in the rec there is nothing by filed with Forecasts the from suggest any gas produced ord operators in the having completed wells to un Appling the Field has devoted been These nominations state reservoir. lawful uses. ex- producer volume of which each pects his wells be able to market indicated a number As above there are may month, operator vertically separated and an reservoirs any Appling forecast amount he desires these reservoirs Field. Five of delivery by not exceed the are order here does covered Commission’s them, Kop- concludes his wells. If One of the Middle issue. deepest result nicky, by largest does not is the far the use of forecasts and productive of reasonable in the Field. a correct determination and most reservoir, it takes originally market demand for the contained more than 360 bil- pertinent such as gas. into account other facts lion cubic feet of Each of other previous twelve average for the four reservoirs the order over- covered by purchasers Kopnicky originally con- months or nominations filed lies the Middle expressly billion cubic feet gas. The do so is tained between 3 and 4½ exceptions granted recognized by gas. Under Statewide Rule 31. Rule 37 Commission, appellees and other town of Article 6008 men Under permitted numerous lessees were to drill lot in is not tioned above where waste tracts, wells on small most of them con- volved, determined as acre, taining approximately of Vio monthly res the Commission becomes the single multiple completions from a to make formula ervoir allowable. allocation reservoirs well bore in of the several applicable field is divide to the then used to underlying their lots. among wells delivery reservoir. The small tract entitled to wells have ca- Field, pacities similar to those of the wells located Appling the case of the A large study strike on tracts. disclosed formula we refused i/3-¾ drainage place taking down Texas v. was from the Middle in Railroad Commission of America, supra. Kopnicky Company upper zone sands Aluminum smaller inequities through in the bore Subject inherent well communication deny, appellants say, n - Appellees sions Rule 2. do which established Appling allocation formula this method % express- may produce is Field. each well amount required provi- ly sanctioned multiple completions. example wells with An to illustrate the well will serve producing problem. bore communication distorted the One of the reservoirs capability upper comple- designated Segment zone well Field is 7500', completed operators tions and thus and 18 therein. enabled wells were file forecasts far of what the true Seventeen of wells were located excess these delivery acres, remaining was capacity of wells have 7.132 would while been in Since the 17 the absence of such communica- situated on a 328-acre unit. because, large aggregate pointed tion. It had that effect small tract wells have a above, delivery capacity, operators out were able amounts of the forecasts their capacities large only by delivery correspondingly are limited to make forecasts July, of the wells. for the month The total de- ap- livery capacity of all 18 wells formula in itself allocation i/3-¾ month, 898,000 proximately per MCF *4 gave small the tract wells tremendous in the de- the forecasts resulted drainage advantage larger gas over the demand, termination reasonable market adoption units. Prior to the of the order allowable, for the and hence the reservoir question, now the Commission deter- 880,000 MCF. approximately month was operators many mined that of wells on formula, ½- n basic allocation Under the practice small tracts were the large to an the tract well was entitled of filing forecasts or near the full de- 591,000MCF, produc- allowable of but the livery capacity of their fore- wells. These completed capacity well tive of the best casts, by when combined with those filed 87,000 approximately in the reservoir was operators other and handled accordance capacity productive per MCF month. with procedure the usual out- Commission single large of the tract well was lined in Statewide Rule resulted 34,000 MCF, in accordance about assignment very large reservoir allow- some procedures with the usual Commission ables. were so allowables 557,000 town MCF were allocated to the wells, great large though the tract even for addition lot wells the one month they delivery had normal or maximum even allowable to their shares of the reservoir capacities, incapable producing were ½- n by application of the determined representing the allowables their fair share formula. by of the as determined allocation They accordingly formula. were classi- request- Company America Aluminum fied as capacity assigned limited wells and Statewide Rule ed the Commissionto amend capable the maximum they allowables were by Field applied 31 as producing; the remainder of the allow- for com- establishing either a formula (1) ables to which were entitled under the quantity of puting the maximum among allocation formula reallocated for a might constitute market demand the town lot wells. This enabled latter prac- reservoir, discontinuing the (2) produce far more of the reservoir allow- reallocating the excess allowables tice of able than their share as determined capacity The Commission limited wells. formula, ½- n basic allocation and the Spe- and entered the first alternative chose drainage advantage which the small tract Rule 2-53,009 adopting Field cial No. Order operators already enjoyed by virtue of are portions of which the relevant substantially formula itself was en- thus margin.3 is the order quoted in the hanced. Texas, Counties, “Rule 11: a. Calhoun 3. The reasonable market de- Jackson Appling, Segment 7500'; well each mand for allocated to each shall be in. Appling, Segment 6, 7500'; Ap- the allocation field accordance pling, Segment 6, 7600'; Appling, Seg- formula for field. Lower; daily 7600', Appling, market demand reasonable ment b. The Segment Kopnicky, Fields, fields mentioned ‘A’ for each of the Middle law, istering now under attack. Its effect is establish and to that end shall rules, adopt any demand ceiling as a on reasonable market authorized to all which, regulations quantity fixed or orders which it are when finds allowable, per- provisions monthly would to effectuate unit, largest proration purposes mit the well of said law.” equal delivery capacity if were They say that of the remainder largest delivery statute, particularly upon sections reservoir, to receive appellees rely, must construed capable producing. would light provisions. of these Since the unnecessary consider us to purpose pro- declared of the is the law by appel- some arguments advanced public tection private interests support judg- lees in of the trial court’s prohibiting compelling waste and ratable case, ment. As we view the the basic issue production, they contend that Com- procedure determining is whether the may properly mission consider maximum market demand established tection of correlative as one of the Rule beyond authority delegated 11 is relevant factors in market demand. The takes Appellees up- rely primarily position, therefore, that reasonable mar- on the 12 mentioned ket figure the total that allows above. It is their the stat- contention that operator fair and al- his *5 requires ute the Commission to determine gas located common reser- share of from a then, lawful market demand where and voir within the framework of the exist- involved, waste is not set reservoir Appellants allocation fur- formula. allowable at the amount of market de- ther insist that reservoir allowable and mand so They Rule determined. insist that individual allocations are neces- arbitrary 11 is invalid because it fixes an sarily insepar- intertwined and constitute upon limit based factors which have noth- parts single point able They of a whole. ing to do with market demand. out a rea- reservoir allowable is not sonable if it results in unreasonable well Appellants emphasize 1 Sections and 22 allocations, premise they and from this provide of Article as follows: argue that the determination reasonable past, “Sec. recognition pres- 1. In market demand must be left to the discre- ent, occurring and imminent evils in the unique tion of situ- the Commission so that production gas, use and of natural as a ations existing such in the production result of waste in the and Field through special reg- can be handled use thereof in the correlative absence of ulation. opportunities gas of owners in a com- mon reservoir to use the and Appellants strong make a case for same, protec- this law is enacted for granting to consider public private against tion of interests rights establishing correlative a reason by prohibiting evils and com- waste allowable, problem able our reservoir pelling production. ratable is Legislature to determine whether the reading “Sec. 22. The Commission shall be has done From so. a pari vested broad admin- 6008 and with a discretion other statutes in materia figure by participation shall be the lesser volume facilities factor of the by largest proration either summation of nomi- determined unit. producers’ monthly nated volumes taken from fore- c. market de reasonable dividing produc- casts, reported by mand shall mul be determined capability tiplying daily as shown on GWT-2 market de tive reasonable greatest days exhibiting test of the well mand the number of gathering ability to normal to deliver month.” 318

therewith, appellants appears agree finding. we with a It Com- thus used term “lawful market demand” as mission was not intended to have the broad in_the authority by the suggested third and and discretion fourth sentences Sec- provisions means 1 tion 12 demand of Sections and 22. market considering all for lawful uses. After pro second sentence of Section 6008, however, of Article vides that finds that when the Commission Legislature seems clear to did us that the waste exists or is or that imminent production not intend to from a authorize productive capacity of exceeds the wells reservoir less rea- to be limited to than demand, proceed it “shall then except sonable market proper prorate regulate the order to prevention of waste.4 gas production from such reservoir on a reasonable basis.” If had Section of the statute makes it the duty regulate daily intended for the fix as the of the Commission to Commission to production might gas well “in the manner and amount that circumstances, all herein reasonable under method set forth.” The Commis- probably general gone sion then to Section would not have is directed terms beyond prorate the first Rud production two sentences. See regulate Texas, protection man public private v. Railroad Commission of interests stop Tex. prevention adjust- Instead of waste and the S.W.2d 717. ping point, however, Legis- at that the lawmakers rights, but the ment spelled general out in some detail the Com stop grant lature did not how duty regulate gas production mission’s is authority. 11 tells us when performed. to be to deter powers granted may Section 10 directed mine (1) each month: lawful market be exercised. The Commission instruct- produced demand for prorate ed there to month; protection during for the (2) hearing the volume of that can be “when introduced at evidence from the reservoir and each well support be held as will herein *6 therein waste. finding po- during such month without by made the Commission” that language provides plain The then production tential of statute is excess monthly in- that the reservoir allowable market demand. This is a rather clear market de dication intent the shall be fixed the lawful legislative that mand the that can is therefor or at volume Commission not to be concerned with waste, is without whichever unless it does make such by ported supported he would to have declared that 4. This conclusion is further history limitation of veto bill which authorized oil and a the of our conserva- demand, production pro- reasonable market to tion laws. The first Texas statute prevent- only in because he was interested the Commis- hibited waste and authorized physical things how and could not see waste to “do for the sion all production gas.” 1919, to reasonable limitation conservation of oil and Acts Leg., p. 285, would the effect market demand have 155. It 36th eh. was Legal Hardwicke, preventing controversy Leg- waste. See after extended that the History adopted Production of Proration of Oil “Market De- islature the so-called Texas, Review, Bar 1932, Texas Law 1937 Act” in 42nd mand 1932. Acts Number, p. Against Leg., C.S., 3, preced- p. Association 99. 4 2. ch. This was background, Act,” by rather to be- it is difficult the ed “Anti-Market-Demand finally Legislature provided that when the “shall not be lieve which that waste pro- waste, limit the to authorized Commission to construed mean economic demand, power market duction to reasonable not have to the Commission shall figure might otherwise, directly by attempt order, an even that lower meant or indirectly, production conclud- the be set whenever Commission or to limit the existing rea- equal same would constitute ed that the market demand oil to Leg., C.S., 1931, all the allowable under sonable reservoir for oil.” 42nd 1 Acts Sterling p. 46, is re- circumstances. ch. 26. Governor merely de- quantity. allocating the nominations is an administrative the smaller wells, vice, among may the Commission consider reservoir allowable give appropriate weight facts that by is authorized 13 to to all Commission Section tracts, produc reason- consider size of are relevant to a determination of wells, tive “all other able market demand. pertinent.”

factors which are seems Appellants cite Railroad Commission significant rather then the Commis that 439, Co., v. 152 Tex. Texas Rowan Oil given authority in sion was not similar 173, Harrell, 143 Tex. Corzelius v. S.W.2d fixing the reservoir allowable. 961, and Humble Brown v. 83 S. Refining Oil & Tex. con undoubtedly W.2d 101 A.L.R. S.W.2d templated that each well would receive opinions general these cases contain fair gas produced, share but also expressions regarding vested the discretion specified is by means that which end reg and its accomplished. opinion In our ulate fixing of the reservoir is con rights, any light none of them throws explicit trolled clear terms question Appellants before now us. authority granted opinion also direct our attention respect en that is not Benz-Stoddard, where it was said larged by general provisions the more validity exception there Rule 37 and Sections and 22. “The correction re upon principle is based the Rail requirements laxation of the Section 12 road the flow so can legislative matter if the allowables fixed hardship of gas that need no unreasonable pursuant are thereto application. result from its adhere to We seriously fallible.” Rudman Railroad view, but this Court is authorized Texas, supra. Commission of enlarge powers granted to the Com Legislature. mission In adopting the order ques now in argued summary judg- It is also that the tion, arbitrary the Commission has set an improper ment was is no because there limit on reasonable market showing deter- that the reservoir allowable upon from the reservoir and hence mined month use of up allowable. The limit is based cedure in Rule 11 less than on factors nothing have do with the actual reasonable market demand for demand, agree and we with the Appellants that month. cite Railroad Com- trial court beyond order *7 mission Texas v. Houston Gas Natural power delegated by to the Commission 502, Corp., 559, as Tex. Legislature. Appellants point out that Rule supporting argument. this case a any will serve to reduce or eliminate rate established was distortion in the reservoir re allowables confiscatory, attacked as held that and we sulting from well bore or communication the manner in which the Commission ar- forecasts, exorbitant is in purely but this rived at its was if results not material thereby The prescribed cidental. formula actually yielded the rate a fair return. The is any not in way quantity related to the might point present- decision be in if the passing between the or reservoirs suit brought purpose had been for the amount which the forecasts questioning the fixed reservoir allowable might regarded as excessive. month, particular for but we are a here do mean suggest prescribes We not to that reason- concerned with an order which able always determining market demand illegal must be fixed the use an method for at the mathematical total of the Producers’ the allowable at all times in the future. though subject Forecasts for month. Use of The to these order attack even pling field, reservoir allowable in ac- (Seg. Appling calculated 6) 7500' field, cordance with its for a cer- (Seg. Appling (Seg. 7600' 6) and the might substantially tain month field, (Seg. not be more Appling 7600' lower 6) or Field, less than the A) Kopnicky reasonable market demand Middle situated Cal- County, Texas, for from the reservoir. houn is not within statutory authority of the Railroad Com- judgment The of the trial court is af- 12, 10, 11, mission under Sections firmed. 6008, undisputed and the R.C.S.

facts and is therefore null void.” DISSENTING OPINION upheld This Court has the trial court judgment. This action of the Court ef- SMITH, Justice. fectively from the Commission withdraws power granted respectfully I By Special dissent. Or- establishing a consider correlative 2-53,009 1965, February 1, der No. dated do reasonable reservoir allowable. I prescribed a formula agree Court Article 60081 with the used reason- determining maximum expressly or section thereof either able market demand for reservoirs five by implication withholds from the Com- Exploration & Field. Woods adjust mission the Producing Inc., al., et instituted history Article 6008 and against the suit Commission to test the va- pari other does not statutes in materia lidity of enjoin the order and enforce- holding herein. warrant the drastic made ment. Ben intervened Novak others agree I will has narrowed that the Court plaintiffs. inter- as Claire Benz-Stoddard question, the result reached plaintiff. Company Aluminum vened the Com- that it takes destructive America, Crown Central Petroleum Cor- every power that this mission semblance poration and others as defend- intervened past recognized Court has decisions Com- aligned ants and themselves with the possessed. opinion is the The Rudman uphold mission in effort order. case, authority. principal That Court’s demonstrate, no Plaintiffs and filed I will involved issue defendants motions later summary fixing court allow- judgment. concerning The trial of the field a involved. The plaintiffs’ sustained motion and able entered field there “ * * * judgment ruling plaintiffs cite have no authorities2 which 4, application are cases wherein the Railroad Commission on November here. Those the definition of market the formal order thereon 1, relating February dealing with statutes Railroad Commission dated reached 1965, Special 53,009, de- being ef- market demand for oil. market Order #2 usually new determined adopting a mand for oil is fective December 6049d, procedure pursuant to Article maximum state-wide basis de- rather than on and Article daily limit on the being pursuant basis gas reservoirs, or reservoir field-wide mand five field, Ap- es- Appling (Seg. 5) 7500' Article 6008.3 Sections *8 m.); refused, Inter 1. Colorado All statutes are the article err. o. referred to w. Corporation they appear in Com number under Co. State state Gas Kansas, P.2d 192 Kan. 386 Annotated Texas Civil Statutes. mission of Vernon’s (1964). 266 Dandger Refining 2. & of Oil Co. Texas recognition Texas, of Tex. 1. Railroad Commission of v. Civ.App., 3. Art. 6008. “Sec. (1932) present, past, occur imminent evils 49 S.W.2d 837 and reversed (1933); production ring use natural and of 122 Tex. 56 S.W.2d 1075 in the at produc gas, in Oil of waste the Railroad Commission v. Continental as result (Tex.Civ.App.1941, picture the time the true not limit which shows do pecially, and even Section entry of of the order under attack. to enter the Commission of To the prevent waste. only such orders producer’s fore- My study of “13. specifically directs contrary allowables, casts, for and give consideration in (two less) small tract wells or acres protection of correlative five reservoirs shows that at these confronted with The Commission was present [April and for time 1965] type in when of evil mentioned operators of past years, several these adopted order consideration. under wells, exceptions, small tract with few undis- realized The Commission receiving al- nominating have been and/or puted facts warranted action producing month lowable for each and/or rights and that without order originally place in un- gas than more reser- gas some of the owners in reservoirs. der their tracts these would not be able voirs here involved be not obtain their fair share and would presented in facts “14. Based on the produce their fair share able to and use spe- Affidavit, is clear that this gas in the five reservoirs described of the that exist in these five cial conditions undis- facts are the order. Since the exist Appling Field Reservoirs do not here ex- puted, I deem it sufficient to state any reser- outside the Field cerpts of Kenneth B. from the affidavits Districts voir Railroad Commission Ford, 1 and 2 of Bob R. Harris affidavits procedure 4 and that statewide and Werner, all and the affidavit E. James Rule 31 as outlined Statewide support attached to and which were adequate special for these conditions. summary judg- of Defendants’ motion for reason, Rule Special Field For this ment. reasonably written April regula- Kenneth B. Ford’s affidavit dated necessary for and fair effective 24, 1965, following summation gives the tion in these fields.” tion and use thereof a common reservoir to that waste exists or is imminent in the production Commission to determine gas production tection against gas production be during after notice volume state. relative the Commission shall then proper ket day such reservoir (1) “See. produced same, demand from compelling the lawful market demand of each If and when the Commission order to opportunities such evils any this law is enacted basis. following month; public It shall be the from each such reservoir reservoir exceeds the gas that can be ratable from all reservoirs month, from prorate hearing, month, from On or before the 20th each well by prohibiting from the wells to such reservoir of owners of production. private any reservoir, produce and use shall determine without absence of cor Commission, therein dur- for duty proceed by reservoir, status of interests (2) in this of the waste. gas waste finds mar- on a pro or without that can The Commission ly well. quantity. from it without waste. able entitled to to gas authorized and mined duced market demand therefor garded regulations ed with a broad «< n “Sec. days reservoir allowable give *9 purposes so allocated shall be allocated from amount of ^[*] 22. The Commission as the in the month. monthly waste, that each well daily allowable, law, n dividing to effectuate produced daily produce produced such of said law.” well its fair monthly and to adopt orders whichever is the smaller monthly to each well shall then fix the discretion gas reservoir at gas from which it that end shall allowable shall be monthly or at the volume therefrom among all wells demand can be The volume shall be gas and all such in administer- share shall shall be to be the lawful restricted reservoir, finds are produced for number month- allow- deter- so rules, vest- such gas, re-

322 ca, Corpora- Ford’s affidavit refers to information re- Crown Central Petroleum Werner, Corp. ceived E. Senior tion and Oil Pocantico & Gas James Geologist, 3,702 January, (Alcoa al) approximately since et 1956. Werner’s have affidavit, prepared attached Railroad Commis- acres under I lease. have an isopach summary judgment, map original sion’s motion re- of the net effective study productive cites that he had made an extensive sand which is in this reservoir, geological Appling all data in the which Mr. was furnished to Fields, logs including Ford, petroleum electric Kenneth induction B. reservoir wells, analyses, engineer, all and micro-logs, core enable him to determine net results, productive formation logs test and for- effective acre feet of sand. sonic density logs mation from all wells where 7500') (SEGMENT “APPLING FIELD logs analyses tests and were obtained. my opinion, “In Appling (Segment Harris, Affidavit No. 2 Bob R. 5, 7500’) originally Field is a reservoir employee of the Railroad Commission acres, containing productive surface states: of which Alcoa et al under lease have “The Aluminum Company of America approximately 385 acres. I have deter- application towas amend the Commis- productive mined the net sand thickness procedure sion’s maxi- in each of wells in this reservoir and mum reasonable market demand for all furnished this Ken- information to Mr. Appling Fields, reservoirs in the but the neth B. Ford. evidence submitted at that time was not sufficient opinion of the Com- (SEGMENT 7500') “APPLING FIELD justify applying mission to to all my opinion, “In Appling (Segment reservoirs. This the reason the or- 6, 7500') Field originally is a reservoir applied only der to the 5 reservoirs cov- containing productive acres, surface ered the order.” approximately which are 310 acres Werner’s affidavit states: under lease to Alcoa et al. I have productive determined the net thick- sand prepared “I have maps structure ness each of the in this wells reservoir productive area of the reservoirs re- and furnished this information to Mr. ferred below five based [the involved] Kenneth B. Ford. study, on this and have determined planimeter productive the number of (SEGMENT 6, 7600') FIELD “APPLING acres each reservoir. The results of this are set out below.” my opinion, Appling “In (Seg- 6, 7600') orig- ment Field is a reservoir Werner’s affidavit shows the results of inally containing productive sur- these tests be as follows: acres, face under of which acres are lease et I determined al. have A, Alcoa (SEGMENT “APPLING KOP- productive thickness NICKY, net sand MIDDLE) FIELD each of the wells in this reservoir and “The Appling (Segment A, Kopnicky, Ken- furnished this information Mr. Middle) deepest Field is the neth B. Ford. Fields, the Appling and also far the largest. productive The other reser- 7600', (SEGMENT “APPLING voirs, including below, those referred to LOWER) FIELD lie above the Kopnicky Middle Sand. my opinion, my opinion originally (Segment this reservoir “In 4,288 acres, 7600', contained productive Field is a surface Lower) originally containing productive sur- Company Aluminum Ameri- *10 in mind acres, under lease This Court should bear 481 are face of which as the order under attack was not entered I have determined to Alcoa et al. of Rail- holding in each of result of our the case productive sand thickness net Texas v. Aluminum furnished road Commission of in this reservoir and wells America, supra. Company The market Kenneth B. Ford.” information to Mr. attempt an demand order no sense 1 as well as the The Harris affidavit no. plain- to circumvent our The decision. vividly por- heretofore discussed affidavits purpose of tiffs’ claim that such is the tray probable contem- imminent evils wholly the order is The Rail- unfounded. 6008, supra, plated 1, in Section Aluminum road Commission order the Com- which would have resulted had 30, Company January case was effective the normal mission elected to continue or- whereas the Railroad Commission procedure determining monthly al- present der in the case issued effec- was prorated gas lowable for each tive December 1964. The order under Fields area. The Commis- attack is based on occurrences after Jan- necessity sion was confronted with the uary 30, 1961. The Railroad Commission determining utiliza- whether to continue order in Aluminum entered on the basis was procedures tion of the set in State- out of facts and existed on conditions which dis- 31(c) (e) wide Rule or whether to 30, 1961; January the order became when adopt in its procedure card the normal effective. the order under attack When place undis- a method which under the many changes entered material had puted adequately protect evidence would 30, 1961, January occurred between and. “deemed, rights and a method May, prior The order did not and' to restrict the adjudicate existing- could not conditions equal to an amount market demand as validity 1, 1964, on an. December or the required of the Commission the stat- order effective on that date. Exception in Rule 31. utes.” See the special the market was a condition and hearing preceded adoption: solely the five demand order relates of the order under on De attack was held Appling Field reservoirs. Railroad 4,. cember 5 and 1963. On November expressly found recited adoption,, the Commission ordered its the order under attack that: effective December 1964. The Exami hearing, “From evidence adduced at said ner, hearing who conducted the for the- apparent it was to the Commission that Commission, Railroad determined from an. procedure in use for determining the producers examination of forecasts al market demand for from the men- schedules, production reports and! lowable tioned fields means which Commission, reports test filed with operator could distort the de- tracts,, by operators many wells on small mand determination to such an extent practice of.' they were proration that Commission and ratable forecasts, filing producers witln combined take orders completely were rendered in- operators, causing the forecasts other effective; resulting injury pro customary (Rule 31) adjusted by could be modifying cedure for allowables to result proce- the market demand dure; larger, suggested in in classification of wells located alteration procedure (wells un tracts as limited wells determination of rea- which would! sonable market demand as able modified assigned thereon), the small normally be ability Commission would reduce the greater manipulate and tract wells received allowables distort the reasonable than the share reservoir allowable market demand determination for the per pursuant would have received fields.” 1/3 Humble, supra, acreage formula in In Brown on motion allocation ef well—2/i *11 emphasized fect in the rehearing, the field. this Court applied broad and liberal standards to undisputed conclusively evidence es- the Railroad to the conservation orders of tablishes protect that in order to correla- duty Commission and stated that rights, tive had not make rules lodged the Commission to with power authority Legisla- under Legis- carry to the mandates of out adopt order, ture to it but would have impartially them. lature and enforce been duty derelict in its if had failed rulings that all rules We further said so presents act. I think this a state case presumed Railroad Commission are of the Legislature facts which the intended contrary is made to to be valid unless the adjust the Commission to so as to ulti- appear. mately give operator, to each small or large, his fair share of the in the res- principles keep- cases announce These here, ervoir. The so far as condition repeated statutory declarations ing with concerned, rights correlative are are anal- the Commis- the broad vested in discretion ogous to the conditions described 6008, 22, supra. sion. See Refining cases of Brown v. Humble Oil & statutory is to declaration Another Company, 1069, 296, 126 Tex. 87 S.W.2d pro- 6042, found in Article wherein 1070, (1935); 101 A.L.R. 1393 Corzelius vided : Harrell, 509, v. 143 Tex. 186 961 S.W.2d (1945); Gulf Refin- Land Co. v. Atlantic granted to powers herein “Particular Co., (1939); 134Tex. 131 S.W.2d 73 be construed to shall not Commission Magnolia v. Railroad Com- Petroleum Co. conferred general powers limit the mission, 128 Tex. 96 273 S.W.2d some law, or vacated and until set aside (1936); Railroad Commission of Texas v. competent a court of order or decree of

Manziel, 93 A.L.R.2d S.W.2d the Commis- orders of jurisdiction, all (Tex.1962). jurisdic- its sion as matter within prima facie accepted as tion shall be cases, In these the Court was concerned validity.” evidence of their question Leg- with the of the extent the islature had clothed the Commission Railroad Commission In the case of power gas production oil and 152 Tex. Rowan Oil under the Texas Conservation Statutes. (1953), we said that: Harrell, supra, In Corzelius v. this Court subject to valid property is held “All said : That police power. some

exercise of the “The law under consideration states in op- profitable operators will have a less detail manner and method the Com- eration, recovering their delayed in may prorating reg- mission follow in their creditors gas, in trouble with or be production ulating daily gas well duty to the Commission’s does not affect Leg- from each common reservoir. The by preventing waste. enforce conservation recognized difficulty islature Commission’s it make the Neither does rating regulating confiscatory if cor- arbitrary action or gas from a common reservoir. To make rights protected.” relative are not to be sure that the Commission was out, pointed Rule it- As heretofore narrow, rules in by any bound technical power of expressly self reserves law, objects out the this carrying any modifications to make particular give was in its adjustments that ex- discretion in the Commission broad prevent waste necessary to discretion deems power under the ercise correlative protect or to [Emphasis this law.” added.] date case, supra, brought ceivable Court this late The Manziel was one has no would hold that attacking Com- Manziels Railroad Field allowable to fix the grounds mission order on the that it would in- waste, a manner that will result cause result in it would degree and some property, that dividual allocations confiscation of the Manziels’ permit protection for increased rights of Whelans and Intervenor-Defendants. *12 that the order in of the was violation plain- I sustains the find no case which Commission’s own rules. The Manziels tiffs in that Railroad their contention contended that the Railroad Commission’s power no to consider the Commission has authorizing order to drill a Whelans protection rights or to of correlative em-. irregular well location was violative in- ploy designed to see that each methods 6029(4). of Article The Commission took gets dividual share of the total its fair position authority that it must have the gas common grant to injection location water is fixing The Commission allowables. prevent wells to drainage to strictly limited the clerical function to Here Commission running up total of the the mathematical was confronted with a situation where it producers’ determining forecasts adopted had' no spacing field-wide rule' Court seems to in- field allowable. The wells, injection water but had made case, supra, so dicate that the Rudman special operator orders as desiring to each hurriedly I examined the holds. have Manziel, flood. In upheld to we the order saying feel safe in Rudman record and. Commission, saying: merely that case holds it not. That does must be deter-

“The field Commission primary has two duties it in the mined in the month to which advance of administration and control of our gas applicable oil and is it industry. and that cannot deter- It must look to after has retroactively each field as mined the month to whole determine what expired. is prevent to waste while at the same countering time this considera- forego writing upon At I this time tion with a view allowing toward each- question not the Commission’s of whether or operator to recover fair his share of the motions for sum- the other defendants’ place inoil beneath carry- his land. In mary judgment granted. been should have duties, out these there has devolved would, however, judgment I reverse

upon the to the trial court. mulgate rules, regulations orders industry, that control the and such are HAMILTON, JJ., dis- NORVELL pursuant issued police power to the sent. state, power may and that invade right of the owner of the land to the DISSENTING OPINION place oil long under land as his it is occasion, based justifying on some

and is not HAMILTON, exercised in an-unreasonable Justice. arbitrary See manner. Brown v. respectfully I opin- dissent. The Court’s Refining Co., Humble Oil and 126 Tex. graphically ion out mass confisca- sets S.W.2d property gross injustice tion of A.L.R. (1935).” A.L.R. 1393 results an enforcement of Rule 31 from judicial view of repeated prior these that is under at- amendment statutory powers According declarations of the broad tack here. to Rule 31 before and discretions principal vested Railroad Com- amendment the factor be con- mission Legislature, determining is incon- sidered in reservoir market then, question, demand is the sum of all which gas total real before the Court producers say expect produce gas into what does take following on Producers’ month submit consideration lawful monthly hearings. Forecasts. demand at its Does gas produced take into consideration down, What rule break re- caused the at full the wells in each reser- sulting in the chaos described the Court’s voir or from each opinion, producers regulations then reservoir under the field acre) small (in tracts most of an cases ¾0 in existence? If we determine that did not confine their forecasts the volume considering correct of their they expected own lawfully produced that can produce In most month. regulations already under existence producer say such cases a in effect would hearing, problem at the then time he he had sale for all opin- in its struggles with which the Court proration could under the field ion never does arise. *13 formula, produce but in addition he could determining In the Commission whether and sell more times much than ten that approach problem is correct in its to this By gas neighbors. more belonging to his the bear mind before we must in that taking the sum total of such Producers’ right any to exer- Commission ever had Forecasts the consid- Commission was not powers Legislature grant- the cise the broad ering gas the the market demand for which production prorate ed it to the producers for sale under the available had that gas first be determined had to proration by field formula as established gas produce capacity the wells to the Rule taking consideration into question from exceeded the reservoir gas owners, pro- of other which the gas from such res- the market demand for or to right ducers had no for offer sale years some finding ervoir. This was made produce. It is consideration of evident that ago proceeded Commission any this factor could not reason- furnish promulgate directs orders to statute upon able basis which the Commission produc- regulations governing the rules and could de- determine the true lawful market These gas tion of each reservoir. from gas produced res- mand for from the and, regulations spacing rules established regulations. existing ervoir under the question, it estab- the reservoir rule with a spacing lished unit a 320-acre The Commission came to conclusion proviso exceptions to Rule under considering determining that ex- granted 17 which Commission has gas produced market demand for prevent confiscation ceptions in order to from con- each reservoir that should prevent gas. in order to excess Then Fore- only sider so much of the Producers’ by these units drainage regular from size casts not exceed the amount as would adopted Rule small units producers produce gas lawfully which could formula, S, proration ½- n which is from under allocation the reservoir acreage, and n on based ½ Rule This is all formula out in set per It this rule well factor. here, Rule attack amendment under maximum puts limit on the automatically accomplish. It another factor seeks to adds produced gas can be which amount to be considered consequently well, a limit from each arriving allows at the lawful demand. gas from production of on the maximum of de- market the Commission to determine ,each reservoir. produced from gas mand for the to be things have been regulation rather than It is after all these the reservoir under that it then produced .at gas at full done hearing has a Legislature direction of wells. upon on or nothing 20th of each month to before factors which have do * * determine lawful demand for with (Em- market market demand gas produced to be phasis from each reservoir mine.) for the following month. The lawful place, the first the statute does not

ducing capacity of al- has direct the Commission to determine the ready been determined. The reasonable market demand for necessarily had in mind would reservoir, but it is for to he have been done before the Commission was produced from the means reservoir. This upon called to determine the mar- lawful already necessarily a reservoir which is ket necessarily demand. It follows that the proration, under else Legislature, when it said “to determine upon by would not be called such statute market lawful demand for to be to determine demand. Con- market produced”, ga's had mind the demand, sequently, the market produced regulations under the then here, we are concerned is for force. prora- under All that Rule under amendment holding tion. The Court is as a matter attack, say does is to Pro- of law that the Commissioncannot consider

ducers’ Forecasts it will consider so much supply prora- as is limited of the forecasts as does not exceed the demand, tion in producer lawfully amount which the can Commission, has stricken the order of the regulations under the If force. says which in effect that the Commission amount, do not exceed such then the will, consider and Producers nominations *14 Commission will fix the market demand at Forecasts, only but to the extent the sum total of the Producers’ Forecasts. they do not exceed the maximum amount they If amount, do exceed such then the proration, produced that can under be Commission will fix the lawful market de- strange fixed the Commission. This is a mand at producers the maximum which the holding, in view of the fact that the Com- produce could regulations. under the authority mission would have no or whatever, in is not a case where waste It can be seen that the Commission is involved, demand, un- determine market not arbitrarily demand, fixing the market Any less it rights. did relate to correlative fixing is light it in the of all the facts such order of Commission establish- and circumstances before it at the time it ing in deter- factors to be considered upon called to make the determination. mining The lawful market demand would only considers not purchasers nominations of and Producers’ authority without if it did' not concern Forecasts, but also supply 1, 6008, correlative Section Article may lawfully produced from the reser- is as follows: voir. All these factors bear on lawful or reasonable Legisla- market demand the recognition past, pres- 1. In “Sec. ture had in mind when it directed the Com- ent, occurring and imminent evils mission to determine the lawful market production gas, and use of natural as a demand for gas production result of waste in the and reservoir. use thereof in the absence of correla- opportunities tive in of owners Court, making holding, says: produce common and use adopting

“In ques- same, order now this law is for the enacted protection arbitrary public private Commission has set an limit and inter- against ests market demand for such evils prohibiting upon the reservoir and hence waste and compelling production.” ratable from (Emphasis mine.) The limit is based allowable. By provision Leg law, istering and others the this and to that end shall be rules, islature adopt any has said no uncertain terms that authorized and all may promulgate orders and or regulations orders which finds are rules provisions when have some reasonable to effectuate the prohibition relation purposes waste or and of said law.” among compelling production of ratable interesting opinion It how to note owners a common reservoir. provisions treats the of Sections 1 and States, The Supreme Court of the United suggestions as mere comes to the Thompson Gas Consolidated Utilities in- conclusion had no 364, 371, L. 300 U.S. 57 S.Ct. giving tention of the Commission the Ed. affirming the lower courts authority discretion contained broad which had held an order of invalid The of said sections. ostensibly is Texas Railroad Commission through Court reaches its conclusion authority sued under analysis 10 and of Article of Sections R.C.S., said this: read as follows: “Proration would be valid orders duty “Sec. 10. shall be if to bear reasonable relation shown no prorate regulate Commission to prevention either to of waste or daily gas protection if rights, or of correlative common reservoir in the manner and arbitrary.” shown to be otherwise method herein set forth. The Commis- prorate sion shall opinion Court shows whole of this protection public for the duction purpose that it reason misses the entire private interest: for the existence of Article 6008. very any power given the Rail- basis of “(a) prevention In the of waste as prevent herein; road Commission is to waste is defined ‘waste’ rights. Consequent- (b) adjustment In the ly, in analyzing 12 of Article opportunities rights and of each owner after the Commission has determined gas in a reservoir to common *15 authority pro- facts give exist which it to permitted in gas use or sell as such prorate gas regulate ceed to oil and this Article. production, everything then the Commis- ex- shall “Sec. 11. The Commission sion does Section 12 has thereafter under accomplish the authority ercise the to rights to be either related to correlative or designated (a) of purpose under item given waste. The no au- Commission is presence when or immi- Section 10 thority order to establish rule or finding supported by a nence waste is does to not some reasonable relation have upon at a introduced based evidence Consequently, one or when the other. this hearing provided. herein held as says Court that which is under Rule 11 attack is it has the here invalid because “The Commission shall exercise protecting effect it rights' correlative desig- purpose authority accomplish plain is doing pur- of the so face 10 when (b) nated under item of Section poses of the statute. hearing evidence introduced at a support provided held as herein will Court, arriving holding, at its that finding a made above-quoted not ignores the Section open aggregate volume of lawful ignores of Article but also daily potential capacity flow article, 22 of said follows: which reads as gas located in a com- duce of all wells daily reservoir, “Sec. 22. The Commission shall be of the mon is in excess vested a with broad discretion admin- reasonable market that, for lawful uses.” It does mean such may produced from wells it it means more in the context which reservoir, per- to be utilized as common is I used. would add to the Court’s defi- mitted in this Article.” produced.” nition “and As stated lawfully Court, powers noting after above, time there was effect

granted Commission in Section 10 to promulgated the amend- prorate production for the ment sub- now under attack a valid and protection rights “when evi- correlative proration res- sisting covering order held hearing dence introduced at a question. ervoirs in is not order finding support as herein will a under attack here and is still in force. Commission”, potential made law. Until set aside has the effect of production in is excess of reasonable'market says: “It Section 16 of Article 6008 shall demand, it then makes statement: this any person be unlawful for from a well in violation “This is a rather clear indication valid orders of the Railroad Commission legislative intent is that the Commission Texas.” to be concerned correlative rights it does find- unless make says the Court that it does not While ing.” suggest mean to that reasonable market always demand must be fixed at the mathe- just That statement as it true matical Producers’ Forecasts total be, opinion say can but what the fails to for the month and that the Commission is that the Commission did make that weight may give appropriate consider and finding; it did become concerned with to all factors that are relevant deter- rights; promulgate correlative it did demand, mination of reasonable market proration order covering the reservoirs empty The Court are rather words. involved, here protect which is Rule may holds not con- that the Commission rights. correlative Once the Commission rights sider correlative a factor finding potential produc- made the In view determination market demand. tion in excess of reasonable market holding is no of this of the Court there powers demand all the broad and discre- way in which the can tion upon conferred the Commission to Exploration If Woods prorate regulate production oil destroy Company pipe line can and a small gas came Yet into effect. the Court’s ques- in the reservoirs opinion says that, because the Commission pipe larger is unthinkable what tion first finding, had to make “It thus all lines can do to fields over appears that the in- Commission was not tract own- state there are small wherever authority tended to have the broad and ers located. *16 suggested by discretion Legis- says Court in effect that the The 1 Sections and 22.” is difficult to see protect cor- powers gave lature broad conclude, how the Court can from the rea- through- relative to the Commission gave, Legislature sons it did not that the took out oil and it the statutes on mean it what said. away pen when with one stroke (1) phrase determine I “shall disagree with the Court’s definition of wrote one the lawful market demand for “lawful demand” as used in that dur- part each such reservoir 12 as fol- of the sentence in Section * * * “* * month; following ing (1) lows: determine shall spite of the fact that lawful market demand for must nowhere told the Commission what during duced from * * determining lawful month; not consider in Court must hold- of this market demand. The effect defines it as “reasonable market 330

ing destroy, is to so far as fields

in which there are small tract owners are

concerned, of the Commission protect rights. This Court

has said contrary numerous times

present ruling that the Commission has powers prorating

broad regulat so gas production oil and as to Railroad Commission Company,

v. Shell Oil 559; Commission, Marrs v. Railroad 941;

142 Tex. Land S.W.2d Gulf

Co. v. Atlantic Refining 134 Tex. 73; Refining S.W.2d Atlantic Co. Commission,

v. Railroad Tex. 801; Halbouty

S.W.2d Railroad Com v.

mission, 163 Tex. S.W.2d

I judgment would reverse the the trial

court. NORVELL, JJ., join

SMITH in this

dissent. al., TYLER CITY OF et Plain- Error, tiffs in RAILWAY

ST. LOUIS SOUTHWESTERN al., COMPANY OF TEXAS et

Defendants in Error.

No. A-11260.

Supreme Court Texas.

July 20, 1966. *17 Smith, Tyler, plaintiffs.

Troy Fiddes, Cosper Clyde Roy P. W. Devereux, Tyler, Brelsford, Ramey, Flock & Winstead, Jackson, & Walker, Cantwell Case, Dallas, Miller, L. defendants. D.