Atlantic Refining Co. v. Gulf Land Co., 8756.

• Decision Date: 01 June 1938
• Docket Number: No. 8756.,8756.
• Citation: 122 S.W.2d 197
• Parties: ATLANTIC REFINING CO. et al. v. GULF LAND CO. et al.
• Court: Texas Court of Appeals

122 S.W.2d 197

ATLANTIC REFINING CO. et al. v. GULF LAND CO. et al.

No. 8756.

Court of Civil Appeals of Texas. Austin.

June 1, 1938.

Rehearing Overruled November 30, 1938.

Dissenting Opinion December 2, 1938.

Appeal from District Court, Travis County; J. D. Moore, Judge.

Suit by the Atlantic Refining Company and others against the Gulf Land Company and the Railroad Commission to set aside as invalid the commission's permit to the Gulf Land Company to drill a second well on a 2.35-acre tract of land in the East Texas oil field. From a judgment refusing to set aside the permit, the Atlantic Refining Company and others appeal.

Partly reversed and rendered, and partly reversed and remanded with instructions.

Powell, Wirtz, Rauhut & Gideon and C. B. Jeffrey, all of Austin, for appellant Hawkeye Petroleum Corporation.

C. B. Ellard, of Dallas, Black, Graves & Stayton, of Austin, for appellant Atlantic Refining Co.

Wm. McCraw, Atty. Gen., Harry S. Pollard and Charles Rutta, Asst. Attys. Gen., for appellee Railroad Commission of Texas.

W. B. Harrell, of Dallas, and Henry H. Brooks, of Austin, for appellee Gulf Land Co.

BAUGH, Justice.

This is a rule 37 case. Appeal is from a judgment of the District Court refusing to set aside as invalid a permit granted by the Railroad Commission on July 29, 1936, to the Gulf Land Company to drill a second well on its 2.35-acre tract of land in the East Texas field in Gregg County, as an exception to rule 37, recited to be necessary to prevent confiscation of property.

The following material facts are uncontroverted: When oil was discovered in the East Texas field one W. Smith owned in fee 128 acres of land, including that here involved. On January 28, 1931, he leased a 43-acre tract out of this 128 acres to G. T. Hudson et al., which 43-acre tract was subsequently subdivided into other tracts, one of which was a tract containing 6.88 acres, in the form of a right angle triangle, the base line of which was approximately 1030 feet long, running east and west; the perpendicular, which constituted the east side of the triangle, being 562 feet; the hypotenuse of which triangle was the common boundary line between said 6.88-acre triangular tract and a 40-acre lease owned by the Atlantic to the north.

At the time of this 6.88-acre triangular subdivision in March, 1931, the spacing provisions of rule 37 were 150-300 feet, and under them said 6.88-acre triangular tract was capable of development as a whole without necessity for an exception to rule 37. On February 25, 1932, rule 37 was amended by the Railroad Commission and its spacing distances increased to 330-660 feet. After this was done, and prior to the application for the permit here involved was made, this 6.88-acre tract was subdivided into six small tracts, four of which contained less than 1 acre each, one contained 1.46 acres, and the one here involved, located north and south across and near the center of said triangular tract, contained 2.35 acres. Near the center of each of these six subdivided tracts was drilled one well, or six wells on the 6.88-acre tract. This constituted development to a greater density on this triangular tract than that prevailing on eight times the surrounding area, delineated either in circular shape or by eight triangles of similar shape and dimension.

On June 8, 1934, the Gulf Land Company, owner of the 2.35-acre lease, near the center of which it then had one producing well, applied to the Commission for a second well thereon. This application was denied by the Commission, the finding of the examiner being that the 2.35 acres was a voluntary subdivision and that no additional well was needed on the 6.88-acre tract out of which it was carved, to prevent drainage of the larger tract. On April 29, 1935, the Gulf Land Company again applied to the Commission for two additional wells on this 2.35-acre tract. At that time the map filed by the Gulf Land Company showed that the 6.88-acre tract had six wells on it. This application was denied on May 29, 1935. Thirteen months thereafter, on June 29, 1936, the Gulf Land Company filed a motion for rehearing on said application, to which was attached a map or plat showing the same conditions as to wells on this and the surrounding tracts as shown on its 1935 application. This motion was granted and on July 29, 1936, the permit for one well, the one here under attack, was granted. This was done notwithstanding its prior order that such subdivisions would not be considered in granting exceptions; and its further promulgated rule that such motions for rehearing would not be considered unless filed within 20 days after such order shall have been entered of record.

It may be observed that two denials by the Commission of any additional well on the 2.35-acre tract, on the ground that it was a voluntary subdivision, and that no additional wells on the 6.88-acre tract were necessary to prevent confiscation as to the larger tract, constituted, at least, an implied finding by the Commission that the wells applied for were not necessary to prevent waste. And, further, that Gulf Land Company's motion for a rehearing shows the same number and location of wells in this area as did its original application. That is, so far as density and location of wells were concerned, it negatived, rather than showed, any changed condition.

From the facts stated it is manifest that Gulf Land Company obtained no vested right to an additional exception to rule 37 to protect its 2.35-acre tract from drainage. It is now settled that one acquiring land or a leasehold estate therein must contract with reference to, and not so as to necessitate an exception to, rule 37, in order to secure a vested right which he is entitled to have protected. Sun Oil Company v. Railroad Commission, Tex.Civ. App., 68 S.W.2d 609; Railroad Commission v. Magnolia Pet. Co., Tex.Sup., 109 S. W.2d 967. It is also true that such right is determinable by the provisions of the rule at the time he in good faith acquires such leasehold estate, and not by subsequent amendments thereto increasing such spacing distances. Humble Oil & Ref. Co. v. Railroad Commission, Tex.Civ.App., 94 S.W.2d 1197, writ refused. At the time the 6.88-acre tract was subdivided from the 43-acre tract the spacing provisions of rule 37 were 150-300 feet, and said 6.88-acre tract was capable of development as a whole under said rule without exceptions thereto. At the time the 2.35-acre tract here involved was subdivided therefrom these spacing provisions were, and for several months prior thereto had been, 330-660 feet. The Gulf Land Company was charged with notice, when it acquired its leasehold, that such tract could not be developed without an exception to said rule, and consequently acquired no vested right to such an exception to prevent drainage. The well here involved not only required an exception to the 330-660-foot spacings, but would also have required an exception to the 150-300 spacings. That being true, under the application of the subdivision rule as made in the Century Case (Railroad Commission v. Magnolia Pet. Co., Tex.Sup., 109 S.W.2d 967), the Gulf Land Company's rights to such permit are referable to the 6.88-acre tract treated as a unit.

Appellee Gulf Land Company urges that in applying the subdivision rule under the Century Case, the 6.88-acre tract is referable to the original 128 acres owned in fee by Smith; that appellant failed to show that said 128 acres was not entitled to an additional well; and that it therefore failed to overcome the presumption of validity of the Commission's order granting said permit. Manifestly this contention cannot be sustained. The original 128 acres was not leased as a whole. The tracts into which it was originally subdivided were all of such size and dimensions as to be capable of development without exceptions to rule 37. The subdivision of the 128 acres from which the 6.88 acres was later subdivided was a 43-acre tract capable of development as a whole without exceptions to the rule. So was the 6.88-acre tract at the time it was segregated therefrom. In applying the voluntary segregation rule, therefore, applicable to Gulf Land Company's tract, inquiry need extend no further than to the tract which was capable of development as a whole without exception from which it was segregated.

When so considered the 6.88-acre tract was shown not to need the additional well either to adequately develop it or to prevent drainage. As above stated, with six wells already drilled on it, it had a greater density per acre than the surrounding area. The uncontradicted evidence showed that underground conditions as to sand thickness, porosity, permeability, and pressure were uniform throughout this area; that the hourly potential of wells and the daily allowable fixed by the Commission for wells on this 6.88-acre tract and throughout the eight times area surrounding it were practically identical. In addition to the above, the only petroleum engineer who testified, and whose qualifications as an expert are not questioned, showed that from his own tests, experience, and records made by him, and from those of the Railroad Commission, he was familiar with underground conditions prevailing in this particular area, and testified that drainage to this 6.88-acre tract, with six wells on it, was greater than the drainage from it by surrounding wells.

On the issue of waste prevention, in addition to the facts in evidence above stated, the maps and plats showing density and location of wells, the petroleum engineer for the Atlantic testified at length both on direct and cross-examination, going into detail as to waste caused by dense drilling in a localized area, where underground conditions and per well allowable are uniform, as was true here. He testified that localized density caused lowering of pressure therein and brought increased water encroachment. Not only this but tests made in wells on the...