Champlin Refining Co. v. Corporation Commission

• Citation: 51 F.2d 823
• Decision Date: 11 August 1931
• Docket Number: No. 1156.,1156.
• Parties: CHAMPLIN REFINING CO. v. CORPORATION COMMISSION OF STATE OF OKLAHOMA et al.
• Court: U.S. District Court — Western District of Oklahoma

51 F.2d 823 (1931)

CHAMPLIN REFINING CO. v. CORPORATION COMMISSION OF STATE OF OKLAHOMA et al.

No. 1156.

District Court, W. D. Oklahoma.

August 5, 1931.

Dissenting Opinion August 11, 1931.

Harry O. Glasser and H. G. McKeever, both of Enid, Okl., and Geo. Ramsey and Edgar A. Demeules, both of Tulsa, Okl., for complainant.

J. H. Miley, of Oklahoma City, Okl., W. P. Z. German, of Tulsa, Okl., Jess L. Ballard, Asst. Atty. Gen., and E. S. Ratliff, Atty. for Oklahoma Corporation Commission, and Chas. West, for Governor of Oklahoma, both of Oklahoma City, Okl., for defendants.

Before COTTERAL and PHILLIPS, Circuit Judges, and KENNAMER, District Judge.

COTTERAL and PHILLIPS, Circuit Judges.

This is a suit brought by Champlin Refining Company, a corporation, to enjoin the enforcement of certain oil proration orders made by the corporation commission of the state of Oklahoma. The case has been finally heard and submitted on the merits; the facts appear from the special findings of fact filed herewith and need not be reiterated here.

The orders in question are predicated on the provisions of the Act of February 11, 1915, S. L. 1915, page 35, sections 7954-7963, inclusive, C. O. S. 1921, which is set out in footnote.¹

Counsel for plaintiff contend: First, that the statute on which the orders are predicated is unconstitutional; and, second, if the statute is valid that the orders themselves violate the constitutional rights of plaintiff and are void.

The Validity of the Statute.

We observe at the outset that the burden rests upon the plaintiff to establish that the statute infringes the constitutional guaranties which it invokes, and if the statute is susceptible of a construction which conforms to constitutional requirements, doubts must be resolved in favor of and not against the state. Toombs v. Citizens Bank of Waynesboro, 281 U. S. 643, 647, 50 S. Ct. 434, 74 L. Ed. 1088; United States Airways v. Shaw (D. C.) 43 F.(2d) 148, 150.

The statute has a dual aspect: First, as a penal statute to prevent waste and to protect the coequal rights of the several owners of land situate over a common pool of oil and gas to take from the common source of supply; and, second, a regulatory statute to be supplemented by rules, regulations, and orders of the commission to accomplish the same ends.

The penalties provided are for violations of the statute and no penalties are provided for violations of the rules and regulations promulgated by the commission.

We are of the opinion that the statute is too indefinite and uncertain to be sustained as a penal statute. Smith v. Cahoon, Sheriff, 283 U. S. 553, 51 S. Ct. 582, 75 L. Ed. ___. An oil operator should not be required at the peril of severe criminal penalties to determine in the operation of his oil and gas wells whether he is committing economic waste or producing in excess of reasonable market demands because such terms are not defined in the act and are of uncertain and doubtful meaning. Likewise, a producer from a common source of supply should not be required to determine at the peril of such penalties whether he can operate at full production without committing economic waste or producing in excess of reasonable market demands.

Furthermore, it is unreasonable to require an operator to choose between two approved methods of operation, the results of which cannot be forecast with precise accuracy, in dealing with the ordinary problems confronted in the drilling and operation of oil and gas wells, at the peril, if he makes the wrong choice, that some underground waste will result and he thereby become subjected to such severe penalties, under a statute which affords no guide for the operator under such circumstances. However, except in one particular hereinafter mentioned, the validity of the act as a penal statute is not before us.

Oil and gas are natural resources which cannot be replaced, and the power of the state to impose reasonable regulations to prevent waste in the production, handling, and marketing thereof is undoubted. Ohio Oil Co. v. Indiana, 177 U. S. 190, 20 S. Ct. 576, 584, 44 L. Ed. 729; Lindsley v. Natural Carbonic Gas Co., 220 U. S. 61, 31 S. Ct. 337, 55 L. Ed. 369, Ann. Cas. 1912C, 160; Walls v. Midland Carbon Co., 254 U. S. 300, 41 S. Ct. 118, 65 L. Ed. 276; Cooley's Constitutional Limitations (8th Ed.) vol. 2, pp. 1319-1321.

The right of the state to make reasonable regulations for the protection of the coequal rights of landowners over a common pool of oil or gas to take from the common source of supply and to prevent one from taking in an undue proportion to the detriment of the others, and to prevent one from committing waste to the injury of the rights of the others, is well settled. Ohio Oil Co. v. Indiana, supra; Lindsley v. Natural Carbonic Gas Co., supra; Walls v. Midland Carbon Co., supra; Oxford Oil Co. v. Atlantic Oil Producing Co. (C. C. A.) 22 F.(2d) 597; Id. (D. C.) 16 F.(2d) 639; Marrs v. City of Oxford (D. C.) 24 F.(2d) 541; Id. (C. C. A.) 32 F.(2d) 134, 138, 67 A. L. R. 1336.

In the Ohio Oil Case the court said: "On the other hand, as to gas and oil the surface proprietors within the gas field all have the right to reduce to possession the gas and oil beneath. They could not be absolutely deprived of this right which belongs to them without a taking of private property. But there is a coequal right in them all to take from a common source of supply the two substances which in the nature of things are united, though separate. It follows from the essence of their right and from the situation of the things as to which it can be exerted, that the use by one of his power to seek to convert a part of the common fund to actual possession may result in an undue proportion being attributed to one of the possessors of the right to the detriment of the others, or by waste by one or more to the annihilation of the rights of the remainder. Hence it is that the legislative power, from the peculiar nature of the right and the objects upon which it is to be exerted, can be manifested for the purpose of protecting all the collective owners, by securing a just distribution, to arise from the enjoyment, by them, of their privilege to reduce to possession, and to reach the like end by preventing waste."

It is within the power of the Legislature to lay down general rules for the prevention of waste and for the protection of such coequal rights of the several owners of land over a common pool and to delegate to an administrative agency the power to promulgate rules and regulations covering matters of detail for carrying such general rules into effect. Plymouth Coal Co. v. Pennsylvania, 232 U. S. 531, 34 S. Ct. 359, 58 L. Ed. 713; Oxford Oil Co. v. Atlantic Oil Producing Co., supra; 12 C. J. p. 847, § 330.

Section 10 of the act provides "that the invalidity of any section, sub-division, clause or sentence of this act shall not in any manner affect the validity of the remaining portion thereof."

Sections 1, 3, 4, 5, 6, and 7 of the act provide a complete scheme for the enforcement through rules and regulations promulgated by the corporation commission of the general rules provided in sections 3 and 4 for the prevention of waste and for the protection of the coequal rights of the several owners of land over a single pool of oil and gas to take from the common source of supply, and may, in our opinion, be severed from the remaining portion of the act. Ohio River & W. R. Co. v. Dittey et al., 232 U. S. 576, 34 S. Ct. 372, 58 L. Ed. 737; Grand Trunk R. Co. of Canada v. Michigan R. R. Commission, 231 U. S. 457, 34 S. Ct. 152, 58 L. Ed. 310; Phoenix R. Co. v. Geary, 239 U. S. 277, 36 S. Ct. 45, 60 L. Ed. 287; Grenada Lbr. Co. v. Mississippi, 217 U. S. 433, 30 S. Ct. 535, 54 L. Ed. 826; Western Union Telegraph Co. v. City of Richmond, 224 U. S. 160, 32 S. Ct. 449, 56 L. Ed. 710.

We are not concerned with the question of whether such sections provide the best method of preventing waste and protecting such rights. The determination of that question is a legislative prerogative. Chicago, B. & Q. R. Co. v. McGuire, 219 U. S. 549, 569, 31 S. Ct. 259, 55 L. Ed. 328; Block v. Hirsh, 256 U. S. 135, 41 S. Ct. 458, 65 L. Ed. 865, 16 A. L. R. 165. The question here is whether such provisions are reasonably calculated to prevent such waste and protect such rights and are not an unreasonable interference with the rights of such owners to enjoy their property.

The production of oil and gas in excess of transportation or marketing facilities or in excess of market demands results in above-ground storage. At the time this statute was enacted, as shown by the orders of the commission, it resulted in large amounts of such storage in earthen reservoirs, with resultant waste through seepage and evaporation. It is a well-known fact in the oil industry that oil can be best stored underground. Furthermore, it is established by the evidence that to permit oil wells to flow at their maximum flush production results in the use of an excessive amount of gas pressure, an uneconomical and wasteful use of gas energy in lifting the oil, and a tremendous loss in ultimate recovery. This is of particular importance in a pool such as the Oklahoma City pool where the wells are of tremendous depth and the cost of artificially raising the oil will be unusually great. It is important that the wells shall be permitted to produce with the lowest practical gas-oil ratio, to the end that the gas pressure shall be preserved throughout a long period and the greatest ultimate recovery of gas and oil obtained.

Sections 3 and 4 of the act, when supplemented by proper rules and regulations of the commission, are reasonably calculated to prevent such wastes and to protect such coequal rights of the several owners of land over a common pool. And, in our opinion, are clearly within the competency of the Legislature.

It is asserted by counsel for plaintiff that the statute and the orders have for...