*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.
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);
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.