Barnwell, Inc. v. Sun Oil Co.

Decision Date13 April 1964
Docket NumberNo. 42947,42947
Citation249 Miss. 398,162 So.2d 635
PartiesBARNWELL, INC., et al. v. SUN OIL COMPANY et al.
CourtMississippi Supreme Court

Forrest B. Jackson, Jackson, R. M. Nichols, Shreveport, La., for appellants.

Joe T. Patterson, Atty. Gen., Kenneth I. Franks, Jackson, John T. Armstrong, Hazlehurst, Edwin M. Cage, Dallas, Tex., for appellees.

RODGERS, Justice:

Barnwell, Inc., Barnwell Drilling Company, Inc., and Barnwell Production Company, filed a petition with the State Oil & Gas Board of Mississippi, requesting an amendment to the Special Field Rules for the Lower Tuscaloosa Pool in the McComb Oil Field in Pike County, Mississippi. The petition alleges that on March 15, 1961, the Oil & Gas Board of Mississippi (hereinafter called the Board) amended the Special Field Rules for the McComb Oil Field as originally promulgated on October 21, 1959, after the approval of the unitization agreement of certain owners, royalty owners and other interested parties. It is said that Rule 2 in actual practice had seriously discriminated against the petitioners and others, in that there had been a reduction of the daily allowable production to the individual drilling units of not to exceed forty barrels of oil per day, which is greatly below the maximum efficiency daily rate of production of some of the wells, and therefore there should be appropriate amendments to Rule 2 as to the allocation of production and the fixing of daily allowables for the pool and the method of making allocation. The petitioners annexed to their petition a proposed amendment which they alleged to be just and equitable, and would provide for the maximum efficiency daily rate of production of the McComb Oil Field so as to allocate daily allowables to individual drilling units and to the fieldwide units. It is alleged that heretofore the allocations in the McComb Oil Field has been discriminatory and has not protected the coequal and correlative rights of all owners and that a continuation of the effectiveness of Rule 2 as it is now in effect will amount to the taking of the property of petitioners without due process of law, and is a denial of equal protection of the law under the Fourteenth Amendment to the Constitution of the United States and is a denial of due process of law guaranteed by § 14, Art. 3, Miss.Constitution 1890.

The proposed amendment provided that each well operating in the McComb Oil Field in the Lower Tuscaloosa Pool should be tested at various rates of production for a given twenty-four hour period to determine the maximum efficiency rate of production, and that the total allowable for the McComb Field for each twenty-four hour day should be then determined by adding the maximum efficiency rate of production for each well, and that each well be permitted to produce not in excess of its maximum efficiency of daily rate of production. A method, or formula, is then suggested by which each well would be permitted to produce oil. Process was duly published, giving all interested parties notice of the desired change in Rule No. 2. Parties were notified to appear at a given time to contest the proposed application. In due time, the Sun Oil Company filed an answer as a unit-operator and as an individual owner-defendant, wherein it admitted the allegations as to the rule heretofore established by the Board but denied the allegations of the petition as to the claim that the field rule should be amended as proposed by the petitioners. It was affirmatively asserted that the petitioners had not alleged any changes of conditions subsequent to the time of the hearing, at which the field rules were established, that would warrant any change in the rules there fixed. H. E. Allen and Allen-Pullen Company, two owners of interest in the McComb Oil Field, appeared and filed a motion requesting the Board to docket and dismiss the petition filed by the petitioners upon the ground that the petition raises the same issue as had been previously decided by the Board; that the issue is between the same parties and that the petition does not contain any averments of material facts with reference to the amendment of the oil field rules that have not been previously adjudicated by the Board. The Board proceeded to hear the motion, a copy of the original proceedings amending the field rule was introduced, including a motion by the appellants here, Barnwell Production Company and Barnwell Drilling Company, to dismiss the application to establish unitization agreement and to amend the field rules for the Lower Tuscaloosa Pool of the McComb Oil Field. This motion alleged that the Board did not have the power to establish the rule sought to be established by the petition to amend the field rules and that such amendment was arbitrary, discriminatory, confiscatory, and amounting to the deprivation of private vested property rights contrary to, and in violation of, the Bill of Rights of the Mississippi Constitution, 1890, particularly § 14 thereof, without due process of law, and was in violation of the Fourteenth Amendment to the United States Constitution.

The petitioners offered in evidence the entire docket of the former proceedings leading up to and including the order of the Board fixing the field allowable. The chief engineer of the Board testified that he had not personally made any bottom hole test since the former order fixing the maximum efficiency rate at 12,000 barrels of oil per day. He testified the allowables were allocated on the surface acreage basis. The petitioners then introduced expert petroleum engineers, who testified that the maximum efficiency rate of production should be established by testing each well and determining therefrom the pool efficiency rate of production so as to give proper allocation and allowables to the various drilling units. This evidence was offered to show that some of the wells in the McComb Oil Field had a maximum efficiency rate of as high as 300 barrels or more per day, but were being permitted to produce only forty barrels, and that by decreasing the flow, there was a loss of gas which increased the oil-gas ratio and that this meant there would be a loss in the ultimate recovery from the Tuscaloosa Pool in the McComb Oil Field and that such loss would be a primary waste.

The Board, after having heard the evidence and the arguments of attorneys, sustained a motion of H. E. Allen and Allen-Pullen Company to dismiss the petition to amend the field rules as suggested by petitioners, particularly Rule 2, Special Field Rules for the McComb Field entered by the Board on March 15, 1961. The petitioners appealed from the order of the Board to the Circuit Court of Pike County, Mississippi, and from an order of the Circuit Court an appeal has been perfected to this Court.

I

The powers of the State Oil & Gas Board are set forth in § 6132-10, Miss.Code 1942, Rec., taken from Chap. 163, § 1, Laws of 1956. By the second paragraph of this statute, it is provided: '* * * (b) The board shall have the authority, and it shall be its duty to make such inquiries as it may think proper to determine whether or not waste, over which it has jurisdiction, exists or is imminent. In the exercise of such power the board shall have the authority to collect data; to make investigations and inspections; to examine properties, leases, papers, books and records, including drilling records and logs; to examine, check, test, and gauge oil and gas wells, tanks, refineries and modes of transportation; to hold hearings; to require the keeping of records and the making of reports; and to take such action as may be reasonably necessary to enforce this act.' The statute also provides that after notice of hearing, the Board is granted authority, and it shall be its duty to make such reasonable rules and regulations and orders from time to time in the proper administration in the enforcement of the act, and to amend the same, after due notice and hearing for the purposes therein set out.

The Board has the authority to require the operation of wells with efficient gas-oil ratios and to fix the limits of such ratios. It has authority to regulate secondary recovery methods, including the introduction of gas, air, water or other substances into the producing formation. It also has authority to allocate and apportion the production of oil or gas, or both, from any pool or field for the prevention of waste as therein defined, and to allocate such production among or between tracts of land, under separate ownership in such pool, on a fair and equitable basis, to the end and that each tract will be permitted to produce not more than its just and equitable share of the pool; provided, however, the owners and producers of each discovery well in the new field or pool shall certify to the Board an itemized list of the expenses incurred in the actual drilling of the wells.

Section 6132-16, Miss.Code 1942, Rec., permits any interested person the right to have the Board call a hearing for the purpose of taking action in respect to any matter within the jurisdiction of the Board upon request therefor in writing.

Under Section 6132-21, Miss.Code 1942, Rec., the Board has the power and authority to regulate drilling and production, and to prevent waste, to protect and enforce correlative and coequal rights of the owners in the pool, which allocation or apportionment of production shall be made on the basis of, and in proportion to, the surface acreage content of the drilling unit prescribed for the production horizons for the pool, so that each prescribed unit shall have equal opportunity to produce the same daily allowable, on a surface acreage basis.

The appellants argue that 'there was no attack here on the right of the Board to regulate and to prescribe the methods of extraction of the oil from the McComb Oil Field for the purpose of conservation, but what the instant petition here was attempting to demonstrate to the Board (was) that...

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