Continental Oil Co. v. Oil Conservation Commission
| Decision Date | 16 May 1962 |
| Docket Number | No. 6830,6830 |
| Citation | 70 N.M. 310,373 P.2d 809,1962 NMSC 62 |
| Parties | CONTINENTAL OIL COMPANY, Amerada Petroleum Corporation, Pan American Petroleum Corporation, Shell Oil Company, The Atlantic Refining Company, Standard Oil Company of Texas, and Humble Oil & Refining Company, Petitioner-Appellants and Cross-Appellees, v. OIL CONSERVATION COMMISSION, Respondent-Appellee and Cross-Appellant, Texas Pacific Coal & Oil Company, a Foreign Corporation, El Paso Natural Gas Company, a Foreign Corporation, Permian Basin Pipeline Company, a Foreign Corporation, and Southern Union Gas Company, a Foreign Corporation, Respondents-Appellees. |
| Court | New Mexico Supreme Court |
Atwood & Malone, Hervey, Dow & Hinkle, Roswell, Kellahin & Fox, Santa Fe, for appellants.
Hilton A. Dickson, Jr., Atty. Gen., Oliver E. Payne, Sp. Asst. Atty. Gen., Santa Fe, for appellee and cross-appellant.
Campbell & Russell, Roswell, for Texas Pacific Coal & Oil Co.
Ray C. Cowan, Hobbs, Hardie, Grambling, Sims & Galatzan, El Paso, Tex., for El Paso Natural Gas Co.
Robert W. Ward, Lovington, for Permian Basin Pipeline Co.
Appellants seek to reverse the judgment of the district court, which, on appeal, affirmed a contested order by the appellee commission.
Appellants are seven of the producers of natural gas in the Jalmat Pool, and the appellees, in addition to the Oil Conservation Commission, consist of one of the producers in the same field and three pipeline companies which take gas from the field. The Oil Conservation Commission, as appellee, is also a cross-appellant on a question which will later be discussed.
The law creating the Oil Conservation Commission was originally enacted as Ch. 72, Sess.Laws of 1935, which, as amended, is now Sec. 65-3-2 et seq., N.M.S.A.1953. It is a compliment to the members of the commission and the industry that, throughout the years, this is the first case to reach this court concerning the merits of any controversy determined by the commission. The parties were, however, before us in State ex rel. Oil Conservation Commission v. Brand, 1959, 65 N.M. 384, 338 P.2d 113, wherein the appellees sought, in an original action, to prohibit the trial court from receiving additional evidence other than that which had been considered by the commission. Upon our denial of prohibition, the trial court considered the record before the commission, heard additional evidence, and confirmed the commission's order. The trial court, at the time of the trial, prohibited the appellee--cross-appellant commission from participating as an adverse party, and this is the subject of the cross-appeal.
In 1954, the commission prorated the Jalmat Pool in Lea County, New Mexico. At that time, the matural gas allowables for the individual wells were determined by the use of the 'pure acreage' formula. Under such a system, each producer is allowed to produce his portion of the total allowable, based upon the acreage of his tract as compared to the total acreage overlying the pool or gas reservoir. In January 1958, following the application of appellee, Texas Pacific Coal & Oil Company, seeking termination of proration, or, alternatively, a change of the gas proration formula, the commission held a hearing, as a result of which it determined to continue proration but did grant the change of the formula. Order No. R-1092-A was issued by the commission, which directed that the method of computing allowables in the Jalmat Pool should be changed to one based upon 25% acreage and 75% deliverability. Appellants sought a rehearing and, at its conclusion, the commission affirmed Order No. R-1092-A by Order No. R-1092-C. The appeal to the district court and here followed, under the provisions of Sec. 65-3-22(b), N.M.S.A.1953 Comp.
It should be observed at this time that, although the appeal under the statute must be from the order entered by the commission on rehearing, actually the commission, with one minor change, merely affirmed its original order and declared that the same should remain in full force and effect. Therefore, from a practical standpoint, it is the validity of Order No. R-1092-A that is in issue.
Appellants urge that the order of the commission is unlawful and unreasonable in depriving appellants of their property without due process of law, in that: (1) The order does not rest upon an authorized statutory basis; (2) the order is not supported by substantial evidence; and (3) the order is incomplete, vague and indefinite.
For clarity, we hereinafter quote the statutes, or portions thereof, with which we are concerned on this main appeal:
'65-3-2. Waste prohibited.--The production or handling of crude petroleum oil or natural gas of any type or in any form, or the handling of products thereof, in such manner or under such conditions or in such amounts as to constitute or result in waste is each hereby prohibited.
'65-3-3. Waste--Definitions.--As used in this act the term 'waste,' in addition to its ordinary meaning, shall include:
'* * *
'(e) The production in this state of natural gas from any gas well or wells, or from any gas pool, in excess of the reasonable market demand from such source for natural gas of the type produced or in excess of the capacity of gas transportation facilities for such type of natural gas. The words 'reasonable market demand,' as used herein with respect to natural gas, shall be construed to mean the demand for natural gas for reasonable current requirements, for current consumption and for use within or outside the state, together with the demand for such amounts as are necessary for building up or maintaining reasonable storage reserves of natural gas or products thereof, or both such natural gas and products.
'* * *
'65-3-5. Commission's powers and duties.--The commission shall have, and it is hereby given, jurisdiction and authority over all matters relating to the conservation of oil and gas in this state, and of the enforcement of all the provisions of this act, and of any other law of this state relating to the conservation of oil or gas. It shall have jurisdiction and control of and over all persons or things necessary or proper to enforce effectively the provisions of this act or any other law of this state relating to the conservation of oil or gas.
'* * *
'65-3-10. Power of commission to prevent waste and protect correlative rights.--The commission is hereby empowered, and it is its duty, to prevent the waste prohibited by this act and to protect correlative rights, as in this act provided. To that end, the commission is empowered to make and enforce rules, regulations and orders, and to do whatever may be reasonably necessary to carry out the purposes of this act, whether or not indicated or specified in any section hereof.
'* * *
'65-3-13. Allocation of allowable production in field or pool.--* * *
'* * *
'(c) Whenever, to prevent waste, the total allowable natural gas production from gas wells producing from any pool in this state is fixed by the commission in an amount less than that which the pool could produce if no restrictions were imposed, the commission shall allocate the allowable production among the gas wells in the pool delivering to a gas transportation facility upon a reasonable basis and recognizing correlative rights, and shall include in the proration schedule of such pool any well which it finds is being unreasonably discriminated against through denial of access to a gas transportation facility which is reasonably capable of handling the type of gas produced by such well. In protecting correlative rights the commission may give equitable consideration to acreage, pressure, open flow, porosity, permeability, deliverability and quality of the gas and to such other pertinent factors as may from time to time exist, and in so far as is practicable, shall prevent drainage between producing tracts in a pool which is not equalized by counterdrainage.
In allocating production pursuant to the provisions of section 12(c) the commission shall fix proration periods of not less than six months. It shall determine reasonable market demand and make allocations of production during each such period, upon notice and hearing, at least 30 days prior to the beginning of each proration period. In so far as is feasible and practicable, gas wells having an allowable in a pool shall be regularly produced in proportion to their allowables in effect for the current proration period. * * *
'* * *
'65-3-14. Equitable allocation of allowable production--Pooling--Spacing.--(a) The rules, regulations or orders of the commission shall, so far as it is practicable to do so, afford to the owner of each property in a pool the opportunity to produce his just and equitable share of the oil or gas, or both, in the pool, being an amount, so far as can be practically determined, and so far as such can be practicably obtained without waste, substantially in the proportion that the quantity of the recoverable oil or gas, or both, under such property bears to the total recoverable oil or gas or both in the pool, and for this purpose to use his just and equitable share of the reservoir energy.
'(b) The commission may establish a proration unit for each pool, such being the area that can be efficiently and economically drained and developed by one well, and in so doing the commission shall consider the economic loss caused by the drilling of unnecessary wells, the protection of correlative rights, including those of royalty owners, the prevention of waste, the avoidance of the augmentation of risks arising from the drilling of an excessive number of wells, and the prevention of reduced recovery which might result from the drilling of too few wells.
'* * *
'(f) After the effective date of any rule, regulation or order fixing the allowable production, no person shall produce more than the allowable production applicable to him, his wells, leases or properties...
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