Consolidated Gas Utilities Corporation v. Thompson, 539

• Decision Date: 30 March 1936
• Docket Number: 550.,No. 539,539
• Citation: 14 F. Supp. 318
• Parties: CONSOLIDATED GAS UTILITIES CORPORATION v. THOMPSON et al. TEXOMA NATURAL GAS CO. v. SAME.
• Court: U.S. District Court — Western District of Texas

14 F. Supp. 318

CONSOLIDATED GAS UTILITIES CORPORATION v. THOMPSON et al.

TEXOMA NATURAL GAS CO. v. SAME.

Nos. 539, 550.

District Court, W. D. Texas.

March 30, 1936.

C. C. Mount, of Oklahoma City, Okl., J. J. Hedrick, of Chicago, Ill., and Morgan, Culton, Morgan & Britain, of Amarillo, Tex., for complainants.

Wm. McCraw, Atty. Gen. of Texas, and Wm. C. Davis, T. F. Morrow, W. J. Holt and Wm. Madden Hill, Asst. Attys. Gen. (C. C. Small, of Amarillo, Tex., Maurice Cheek, of Fort Worth, Tex., Alvin F. Molony, of Tulsa, Okl., and Charles I. Francis, of Houston, Tex., of counsel), for respondents.

Before HUTCHESON, Circuit Judge, and McMILLAN and KENNERLY, District Judges.

HUTCHESON, Circuit Judge.

On amended pleadings bringing down to date¹ the proration orders of the commission plaintiffs complain of, these causes went on January 6, 1936, to final hearing on their merits.

Though complainants' attacks were leveled against both the statute, House Bill No. 266 (Acts of Texas 1935, c. 120, Vernon's Ann.Civ.Stats.Texas, art. 6008), and the orders of the commission, the primary attack was, it was bound to be, on the orders; for none of the matters of which complaint is made are the result of the self-execution of any of the provisions of the statute. They arise on, they exist, only because of the orders. The act is under attack only if and to the extent that it supports the complained of orders. Both act and orders are greatly comprehensive. The act declares the policy of the state in the conservation of natural gas and the prevention of waste in its development and production, and provides broadly for its administration by the commission. It classifies gas as sweet and sour, fixes the uses to which each kind of gas may be put, authorizes the zoning of fields for the purpose of their regulation and administration, directs the commission in the discharge of duties imposed and powers conferred, and provides penalties. The specific sections of the statute involved here are sections 10 to 20, Vernon's Ann.Civ.Stats. of Texas, art. 6008.²

The orders under attack, particularly that of December 10, 1935, are, as to the area in question, the Panhandle district of Texas, like the statute, conceived and couched in comprehensive terms, and purport in accordance with the statute, to bring the whole field under a comprehensive plan of regulation and control. Upon a full recitation of the history of the field, physical, political, and legal, which we adopt as substantially correct,³ in general this plan created two zones, the eastern and the western, fixed the drainage area of each well in each of these zones, and, in the Western Panhandle field, where alone sour gas was found to exist, established a line of demarkation between sweet and sour gas areas.

Plaintiffs do not complain of the zoning provisions of the order. Neither do they complain of the statute or order demarking sweet from sour gas areas and dedicating gas from the wells in each area to the uses the statute provides. Their complaint is general against the provisions of the order which, fixing an allowable production from plaintiffs' wells below the amount they require and have been taking from their wells to serve their customers' needs, makes it compulsory upon them to purchase from the wells of others gas of which plaintiffs have an already ample supply. Their claim as to these provisions is that since it is undisputed that plaintiffs are and always have been producing their wells without waste of any kind, the order as to plaintiffs is not a waste order, but as all the prior orders have been, simply one designed to furnish markets to those having none. They insist that these pretended proration, but in reality reduction, orders are invalid, (1) because not authorized by the statute they purport to administer, and (2) because they take plaintiffs' property without due process of law, and deny them the equal protection of the laws in violation of the Fourteenth Amendment to the Constitution of the United States and of sections 16, 17, and 19 af article 1 of the Constitution of Texas.

As to the statute, they complain of it as violative of the constitutional provisions above invoked only if it be held to support the orders. Their complaint on this score is general, it goes not merely to the particular scheme, but to any scheme of proration the commission may devise. Their insistence is that no scheme of allocation or proration which is designed to and will curtail complainants' production, and by preventing their taking their own gas, compel them to buy from adjoining well owners can be constitutionally applied against them. They insist that the proof is clear and abundant, in fact, that it is admitted, that from the beginning they have conducted their operations prudently and without waste, and have taken for their use only a small part of what they own. Especially do they insist that the orders are partial and unjust as to them, for not only have they not injured their neighbors by excessive takings in proportion to their holdings, but they have themselves been greatly victimized by the excessive, exorbitant, and wasteful takings, of well owners from whom the orders in question, if enforced, will compel plaintiffs to buy back their own gas already diverted from under their land.

In subordination to this general complaint, and only in the event it be not sustained, plaintiffs complain of the order in the particulars to which it has descended in providing the proration scheme, as not in accordance with the statute it purports to rest on, and also as violative of the constitutional provisions already invoked. The particulars of which they complain are that in the purported effort to comply with the legislative direction⁴ for fixing the daily allowable for each gas well in a common reservoir, the respondents have departed from it and have unjustly, unfairly, and unreasonably fixed their allowable. They have fixed it by arbitrarily disregarding factors the statute fixed as controlling, and arbitrarily selecting a standard or basis having no reasonable relation either to the legislative directions or to the physical situation. Instead of taking into account, as the statute requires, the size of the tract, its producing capacity, and the actual drainage area of each well, the commission has arbitrarily fixed the drainage area of each well in the Eastern Panhandle field at 160 acres, in the Western Panhandle field at 640 acres, and has fixed the allowable of each well by an arbitrary formula allowing 50 per cent. based on the potential of the wells, and 50 per cent. based not on the real drainage area, but on the acreage the commission has arbitrarily assigned to each well. (2) It has made this more arbitrary by extending this formula of acreage influence to tracts very much smaller in size, thus allowing tracts held in smaller acreage ownership a greatly larger proportionate production than tracts like complainants', held in large ownership.

Respondents insist that the statute and the orders must be looked at and construed in the light of the conditions of wasteful use existing especially in the sour gas area where gas was being stripped when the statute was enacted, and in the light of the present inability of many well owners for want of light and fuel markets, to make use of their gas. They declare that every intendment should be indulged in favor of their validity, since the public interest in the conservation of gas as a natural resource of the state, the existence of wasteful conditions in portions of the Panhandle field when the statute was enacted, and the power of the state, through the commission, to put a stop to wasteful practices, are beyond question. They urge that the Legislature having these conditions in mind, intended and by the act has provided for, proration of production not only to prevent waste, but also to bring about a condition which will enable owners of wells in the field having no markets, to get their gas to market through selling it to those who have. They point to the commission's finding and order that a waste condition exists in the Panhandle field which requires proration of production, and to the proof they offered here to support it. They point to the admitted fact that there are wells in the sweet gas area of each of the Panhandle zones which under the present statute restricting the use of that gas for light and fuel have no outlet for their gas, unless complainants and other pipe line companies will buy it from them. They insist that the order must be sustained both on the ground that it has a reasonable relation to the prevention of waste in the field generally, and on the ground that apart from waste it is valid as a "correlative rights" measure, a measure for the protection of well owners who under the statute as it now stands will have no market for their gas, unless complainants and others be compelled to buy from them. Complainants on their part insist that it appears beyond question from the recitals in the commission's order and from the evidence in the record that as to them the order was not designed for it has no relation to the prevention of waste. That it was designed for, relates to, and effects only the dedication of plaintiffs' markets and facilities to the wishes and needs of well owners having none, by instituting indirectly a scheme of compulsory purchase.

On the preliminary hearing, we were of the opinion and so wrote that the statute in question was a waste statute. That it had not attempted, except in connection with and as a part of waste prevention, to authorize the proration of production. We held further that if the Legislature meant to say that without regard to questions of waste persons who had provided themselves with markets should, merely because other well owners had none for their gas, be prevented from taking their needs from them, the law would on its face be a class law, unjust...