Shell Oil Co. v. Corporation Commission

Decision Date22 October 1963
Docket NumberNo. 39672,39672
Citation389 P.2d 951,1963 OK 238
PartiesSHELL OIL COMPANY, a Corporation, et al. v. CORPORATION COMMISSION of the State of Oklahoma, and the State of Oklahoma, Defendants in Error.
CourtOklahoma Supreme Court

Syllabus by the Court

52 O.S.1961 § 87.1(d), examined and held: All owners of the 1/8th royalty in a unitized area are entitled to share in 1/8th of all production from a well drilled thereon in the proportion that their acreage bears to the entire acreage in the unit, whether the royalty be in oil, gas, gas well rental, or 1/8th of the revenue from the sale of the gas, and it is the responsibility of each lessee taking production from said well to account to all royalty owners in the unit for 1/8th of the production taken by him, or 1/8th of the proceeds from the sale of such production as the lease contracts may direct, and in the ratio that the acreage of each royalty owner bears to the total acreage in the unit.

Shell Oil Company, a Corporation, and others appeal from an order of the Corporation Commission clarifying and interpreting the 'royalty interest communitization' paragraph commonly used by the Commission in its well-spacing orders under 52 O.S.1961 § 87.1(d). Order vacated as explained.

J. T. Lamb, C. N. Wagner, Denver, Colo., Gordon Watts, G. D. Ashabranner, Oklahoma City, for plaintiff in error Shell Oil Co.

Tom Z. Wright, Harold G. Lowrey, Wright & Lowrey, Woodward, for plaintiffs in error W. R. Blanchard, Waldo M. Blanchard, Olen G. Zoldoske, George S. Lowrey, Arthur E. Sharp, Don Sharp, William Sharp, Darlene A. Fitz, Tom S. Miller, Martin D. Miller, and Alexis T. Miller.

Ferrill H. Rogers, L. D. Hoyt, John Buckingham, Oklahoma City, for defendant in error Corporation Commission.

Howard H. Harris, Tulsa, for defendant in error Ohio Oil Co.

Crowe, Boxley, Dunlevy, Thweatt, Swinford & Johnson, C. Harold Thweatt, Oklahoma City, for amicus curiae United Producing Co., Inc.

George H. Bowen, William C. Phelps, John O. Dean, O. L. Peck, Jr., Tulsa, for amicus curiae Sun Oil Co.

Angus A. Davidson, Ted D. Foster, Jr., Tulsa, for amicus curiae Sinclair Oil & Gas Co.

JACKSON, Justice.

This is an appeal by Waldo Blanchard, a lessor, and others, from an order of the Corporation Commission, and involves the rights of royalty owners as to the one-eighth royalty portion of gas produced from the Morrow Sand in the Laverne Field situated in Harper, Ellis and Beaver Counties, Oklahoma. A brief statement of the facts in chronological order will be helpful.

On October 20, 1955, the Corporation Commission entered spacing order No. 30935 establishing 640 acre drilling and spacing units. The order, among other things provided:

'That all royalty interests within any spacing unit shall be communitized and each royalty owner within any unit shall participate in the royalty from the well drilled thereon in the relation that the acreage owned by him bears to the total acreage in the unit.'

Waldo Blanchard owns 320 acres in Section 23, Township 28 North, Range 25 West, in Harper County, in the Laverne Field. His acreage is under lease to Sun Oil Company. The order 320 acres in the section is owned by W. R. Blanchard, O. S. Black, and the State of Oklahoma (Commissioners of the Land Office), and is under lease to Shell Oil Company.

The two lessees, Shell and Sun, drilled a gas well on Section 23 and entered into an operating agreement whereby Shell drilled the gas well and would operate the unit. So far as the record shows Sun and Shell have each paid their proportionate shares of the costs of drilling and operating the well and there is no indication that Shell claims a lien for either drilling or operating costs against Sun's interest or share in the production under the provisions of 52 O.S.1961 § 87.1(d), or by order of the Commission.

Shell entered into a gas sale contract with Northern Natural Gas Company and Sun entered into a gas sale contract with another company. However, since Sun's gas purchaser has made no pipe line connection with the well Sun has made no gas sales to its purchaser. Sun verbally agreed that Shell might take all of the production from the well and market it for the time being, and Shell began doing so in December, 1959. It was contemplated that when Sun's purchaser had made a pipe line connection, Sun would 'catch up' with Shell in the volume of gas taken from the well and sold. It should also be noted that Shell's gas sale contract called for a basic price of 15cents per MCF, and Sun's contract price was 17cents per MCF. Both contracts have been approved by the Federal Power Commission since all gas from this well would move in interstate commerce.

Shell has sold all of the gas produced from the well at 15cents per MCF; has paid royalty to its lessors; and holds in its possession the money it received from the sale of gas apportionable to Sun's lessor. Sun has made no royalty payments to its lessor, Waldo Blanchard.

In March, 1960, Waldo Blanchard made demand on Sun for payment of royalty and 'received no satisfaction.' Being unable to collect royalty, Blanchard in July 1960, filed an application with the Corporation Commission, asking for an interpretation and clarification of the communitization paragraph of spacing order No. 30935, as above quoted.

Before the application came on for hearing many major producers, independent producers, and royalty owners intervened in view of the fact that the above quoted paragraph from spacing order No. 30935 has been included in practically all drilling and spacing orders of the Commission which have been entered pursuant to 52 O.S.1961 § 87.1.

After extensive hearings at which evidence and contentions were presented by parties representing many different segments of the oil and gas industry, the Commission entered Order No. 44849. By this order the Commission adopted what is called a 'tract allocation' type of royalty interest communization. The pertinent part of the order is contained in paragraph 14 thereof, and is quoted as follows:

'14. That * * * (the paragraph above quoted from spacing order No. 30935) * * * was intended and is to be interpreted and applied as creating a 'tract allocation' type of royalty interest communitization. In entering said orders in Commission contemplated and intended that current production from the well or wells on each producing drilling and spacing unit would be divided volumetrically, that the respective volumes of such production would be currently allocated...

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8 cases
  • Panhandle Eastern Pipeline Co. v. State of Okl. ex rel. Com'rs of Land Office
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • May 6, 1996
    ...lessor) for the owners' proportionate shares of the statutory one-eighth royalty share of production proceeds. Shell Oil Co. v. Corporation Comm'n, 389 P.2d 951 (Okla.1963) (the "Blanchard " case). According to Producers, standard industry practice before the Blanchard decision was to inclu......
  • Seal v. Corporation Com'n
    • United States
    • Oklahoma Supreme Court
    • June 17, 1986
    ...on a tract allocation basis as provided by 52 O.S.1981 § 87.1(e) (amended 1985) as interpreted by this Court in Shell Oil Co. v. Corporation Commission, 389 P.2d 951 (Okla.1964) (commonly referred to as the Blanchard decision), we conclude the Act does not violate Article 5, § 54 of the Okl......
  • Rocket Oil & Gas Co. v. Arkla Exploration Co.
    • United States
    • U.S. District Court — Western District of Oklahoma
    • July 20, 1977
    ...section. Under the provisions of 52 Okla. Stat.1971 § 87.1 as construed by the Supreme Court of Oklahoma in Shell Oil Co. v. Corporation Commission, 389 P.2d 951 (Okla.1963), each lessee selling gas is required to pay 1/8 of the proceeds of its sale of gas to all of the royalty owners in th......
  • Mayo v. Kaiser-Francis Oil Co., KAISER-FRANCIS
    • United States
    • United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma
    • February 5, 1998
    ...supersede a valid contract entered into at arms length and which was fair at the time it was executed. See, Shell Oil Co. v. Corporation Commission, 1963 OK 238, 389 P.2d 951. ¶7 This issue has been litigated numerous times in other jurisdictions with, admittedly, mixed results. However, we......
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20 books & journal articles
  • CHAPTER 15 FEDERAL ROYALTY ACCOUNTING FOR DISPROPORTIONATE SALES FROM FEDERAL UNITS AND CORRESPONDING STATE ISSUES (TAKES vs. ENTITLEMENTS)
    • United States
    • FNREL - Special Institute Federal and Indian Oil and Gas Royalty Valuation and Management (FNREL)
    • Invalid date
    ...702 S.W.2d 232 (Tex. Civ. App. 1985) error ref'd nre (1986) 15-44, 15-58-59, 15-72, 15-74, 15-75Shell Oil Co. v. Corporation Commission, 389 P.2d 951 (Okla. 1963) 15-13, 15-19, 15-46-49, 15-64, 15-69, 15-74Silkwood v. Kerr-McGee Corp., 464 U.S. 238, reh'g denied, 465 U.S. 1074 (1984) 15-76 ......
  • CHAPTER 2 STATE CONSERVATION REGULATION -- SINGLE WELL SPACING AND POOLING -- VIS-À-VIS FEDERAL AND INDIAN LANDS1
    • United States
    • FNREL - Special Institute Federal Onshore Oil and Gas Pooling and Unitization (FNREL)
    • Invalid date
    ...each royalty owner was a lessor of each working interest owner as to their interest in the drilling unit. Shell Oil Co. v. Corp. Comm'n, 389 P.2d 951 (Okla. 1963) (commonly called the Blanchard case) and Okla. Stat. tit. 52, §§ 570.1 - 570.15 (Production Revenue Standards Act). In contrast,......
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    ...to each royalty owner within the unit from the proceeds the seller receives from its sale. See, Shell Oil Co. v. Corporation Commission, 389 P.2d 951 (Okla. 1963). Under this method, lessees contributing low royalty leases are disadvantaged by having to pay unexpectedly higher royalties to ......
  • WELLHEAD IMBALANCES
    • United States
    • FNREL - Special Institute Natural Gas Transportation and Marketing (FNREL)
    • Invalid date
    ...S.W.2d 642 (Tex. Ct. App. 1983). [113] Id. at 646. [114] See Lansdown, supra note 106, at 20. [115] Shell Oil Co. v. Corporation Comm'n, 389 P.2d 951 (Okla. 1963). [116] Arkansas La. Gas Co. v. Southwest Natural Prod. Co., 60 So.2d 9 (La. 1952). [117] See Shell Oil Co. v. Corporation Comm'n......
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