Burford v. Sun Oil Co Sun Oil Co v. Burford

Decision Date24 May 1943
Docket Number496,Nos. 495,s. 495
PartiesBURFORD et al. v. SUN OIL CO. et al. SUN OIL CO. et al. v. BURFORD et al. Re
CourtU.S. Supreme Court

See 320 U.S. 214, 63 S.Ct. 1442, 87 L.Ed. —-.

Messrs. James P. Hart and Ed Roy Simmons, both of Austin, Tex., for Burford et al.

Mr. J. A. Rauhut, of Austin, Tex., for Sun Oil Co. et al.

Mr. Justice BLACK delivered the opinion of the Court.

In this proceeding brought in a federal district court, the Sun Oil Co. attacked the validity of an order of the Texas Railroad Commission granting the petitioner Burford a permit to drill four wells on a small plot of land in the East Texas oil field.1 Jurisdiction of the federal court was invoked because of the diversity of citizenship of the parties, and because of the Companies' contention that the order denied them due process of law. There is some argument that the action is an 'appeal' from the State Commission to the federal court since an appeal to a State court can be taken under relevant Texas statutes;2 but of course the Texas legislature may not make a federal district court, a court of original jurisdiction, into an appellate tribunal or otherwise expand its jurisdiction,3 and the Circuit Court of Appeals in its decision correctly viewed this as a simple proceeding in equity to enjoin the enforcement of the Commission's order.

Although a federal equity court does have jurisdiction of a particular proceeding, it may, in its sound discretion, whether its jurisdiction is invoked on the ground of di- versity of citizenship or otherwise, 'refuse to enforce or protect legal rights, the exercise of which may be prejudicial to the public interest';4 for it 'is in the public interest that federal courts of equity should exercise their discretionary power with proper regard for the rightful independence of state governments in carrying out their domestic policy.'5 While many other questions are argued, we find it necessary to decide only one: Assuming that the federal district court had jurisdiction, should it, as a matter of sound equitable discretion, have declined to exercise that jurisdiction here?

The order under consideration is part of the general regulatory system devised for the conservation of oil and gas in Texas, an aspect of 'as thorny a problem as has challenged the ingenuity and wisdom of legislatures.' Railroad Commission v. Rowan & Nichols Oil Co., 310 U.S. 573, 579, 60 S.Ct. 1021, 1023, 84 L.Ed. 1368. The East Texas field, in which the Burford tract is located, is one of the largest in the United States. It is approximately forty miles long and between five and nine miles wide, and over 26,000 wells have been drilled in it.6 Oil exists in the pores and crevices of rocks and sand and moves through these channels. A large area of this sort is called a pool or reservoir and the East Texas field is a giant pool. The chief forces causing oil to move are gas and water, and it is essential that the pressures be maintained at a level which will force the oil through wells to the surface. As the gas pressure is dissipated, it becomes necessary to put the well 'on the pump' at great expense;7 and the sooner the gas from a field is exhausted, the more oil is irretrievably lost. Since the oil moves through the entire field, one operator can not only draw the oil from under his own surface area, but can also, if he is advantageously located, drain oil from the most distant parts of the reservoir. The practice of attempting to drain oil from under the surface holdings of others leads to offset wells and other wasteful practices; and this problem is increased by the fact that the surface rights are split up into many small tracts.8 There are approximately nine hundred operators in the East Texas field alone.

For these, and many other reasons based on geologic realities, each oil and gas field must be regulated as a unit for conservation purposes. Compare Railroad Commission v. Rowan & Nichols Oil Co., 311 U.S. 570, 574, 61 S.Ct. 343, 345, 85 L.Ed. 358. The federal government, for the present at least, has chosen to leave the principal regulatory responsibility with the states, but does supplement state control.9 While there is no question of the constitutional power of the State to take appropriate action to protect the industry and pro- tect the public interest, Ohio Oil Co. v. Indiana, 177 U.S. 190, 20 S.Ct. 576, 44 L.Ed. 729; Champlin Refining Co. v. Corporation Commission, 286 U.S. 210, 52 S.Ct. 559, 76 L.Ed. 1062, 86 A.L.R. 403, the State's attempts to control the flow of oil and at the same time protect the interest of the many operators have from time to time been entangled in geological-legal problems of novel nature.

Texas interests in this matter are more than that very large one of conserving gas and oil, two of our most important natural resources. It must also weigh the impact of the industry on the whole economy of the state and must consider its revenue, much of which is drawn from taxes on the industry and from mineral lands preserved for the benefit of its educational and eleemosynary institutions.10 To prevent 'past, present, and imminent evils' in the production of natural gas, a statute was enacted 'for the protection of public and private interests against such evils by prohibiting waste and compelling ratable production.' The primary task of attempting adjustment of these diverse interests is delegated to the Railroad Commission which Texas has vested with 'broad discretion' in administering the law.11

The Commission, in cooperation with other oil producing states, has accepted State oil production quotas and has undertaken to translate the amount to be produced for the State as a whole into a specific amount for each field and for each well.12 These judgments are made with due re- gard for the factors of full utilization of the oil supply, market demand, and protection of the individual operators, as well as protection of the public interest. As an essential aspect of the control program, the State also regulates the spacing of wells. The legislature has disavowed a purpose of requiring that 'the separately owned properties in any pool (should) be unitized under one management, control or ownership'13 and the Commission must thus work out the difficult spacing problem with due regard for whatever rights Texas recognizes in the separate owners to a share of the common reservoir. At the same time it must restrain waste, whether by excessive production or by the unwise dissipation of the gas and other geologic factors that cause the oil to flow.

Since 1919 the Commission has attempted to solve this problem by its Rule 37. The rule provides for certain minimum spacing between wells, but also allows exceptions where necessary 'to prevent waste or to prevent the confiscation of property.' The prevention of confiscation is based on the premises that, insofar as these privileges are compatible with the prevention of waste and the achievement of conservation, each surface owner should be permitted to withdraw the oil under his surface area, and that no one else can fairly be permitted to drain his oil away. Hence the Commission may protect his interest either by adjusting his amount of production upward, or by permitting him to drill additional wells. 'By this method each person will be entitled to recover a quantity of oil and gas substantially equivalent in amount to the recoverable oil and gas under his land.'14

Additional wells may be required to prevent waste as has been noticed, where geologic circumstances require immediate drilling: 'The term 'waste', as used in oil and gas Rule 37, undoubtedly means the ultimate loss of oil. If a substantial amount of oil will be saved by the drilling of a well that otherwise would ultimately be lost, the permit to drill such well may be justified under one of the exceptions provided in Rule 37 to prevent waste.' Gulf Land Co. v. Atlantic Refining Co., 134 Tex. 59, 70, 131 S.W.2d 73, 80.

The delusive simplicity with which these principles of exception to Rule 37 can be stated should not obscure the actual nonlegal complexities involved in their application.15 While the surface holder may, subject to qualifications noted, be entitled under current Texas law to the oil under his land, there can be no absolute certainty as to how much oil actually is present, Railroad Comm. v. Rowan & Nichols Oil Co., 311 U.S. 570, 576, 61 S.Ct. 343, 346, 85 L.Ed. 358, and since the waste and confiscation problems are as a matter of physical necessity so closely interrelated, decision of one of the questions necessarily involves recognition of the other.16 The sheer quantity of exception cases makes their disposition of great public importance. It is estimated that over two-thirds of the wells in the East Texas field exist as exceptions to the rule, and since each exception may provoke a conflict among the interested parties, the volume of litigation arising from the administration of the rule is considerable.17 The instant case arises from just such an exception. It is not peculiar that the state should be represented here by its Attorney General, for cases like this, involving 'confiscation', are not mere isolated disputes between private parties. Aside from the general principles which may evolve from these proceedings, the physical facts are such that an additional permit may affect pressure on a well miles away. The standards applied by the Commission in a given case necessarily affect the entire state conservation system. Of far more importance than any other private interest is the fact that the over-all plan of regulation, as well as each of its case by case manifestations, is of vital interest to the general public which must be assured that the speculative interests of individual tract owners will be put aside when necessary to prevent the irretrievable loss of oil in other parts of the...

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