Corporation Commission v. Union Oil Co. of California

• Decision Date: 27 February 1979
• Docket Number: No. 50668,50668
• Citation: 591 P.2d 711
• Parties: The CORPORATION COMMISSION of the State of Oklahoma, and Herman George Kaiser, Appellees, v. UNION OIL COMPANY OF CALIFORNIA, and Amoco Production Company, Appellants.
• Court: Oklahoma Supreme Court

Page 711

591 P.2d 711

The CORPORATION COMMISSION of the State of Oklahoma, and Herman George Kaiser, Appellees, v.UNION OIL COMPANY OF CALIFORNIA, and Amoco Production Company, Appellants.

No. 50668.

Supreme Court of Oklahoma.

Feb. 27, 1979.

Appeal from Order of the Corporation Commission of State of Oklahoma; Rex Privett, Hamp Baker, and Jan Eric Cartwright, Commissioners.

Union Oil Company of California and Amoco Production Company appeal OrderNo. 128054 of the Corporation Commission, allowing an additional well to be drilled in a previously established drilling and spacing unit.Substantial evidence and law supports change of knowledge in condition of the formation and protection of correlative rights of the parties and the Commission's order is affirmed.

AFFIRMED.

Harry C. Marberry, Oklahoma City, for appellees.

H. B. Watson, Jr., Watson, McKenzie & Moricoli, Oklahoma City, for appellantsUnion Oil Company of California and Amoco Production Company.

HARGRAVE, Justice:

Union Oil Company of California and Amoco Production Company appeal from Corporation Commission OrderNo. 128054 as corrected by OrderNo. 128263, wherein Herman George Kaiser, the appellee, was authorized to drill a well in the center of SW/4 of the SW/4 of Section 2, 10N, 9W, in Caddo County, Oklahoma, as an additional well to test the Morrow and Springer formation.The order fixes a penalty of 50% For the additional well and sets an allowable for the amended unit based on the greater open-flow potential of either the previously drilled on-pattern well or the anticipated well authorized by the order, in any case not to exceed 2.45 million cubic feet of gas per day (MMCFD).

Herman George Kaiser filed two applications pertaining to drilling authorization for this well in the SW/4 of the SW/4 of Section 2.One application requested authorization for an off-pattern well and the remaining application requested permission to drill an additional well in the unit.

In 1976, the applicant drilled the Kaiser Gilbert # 1, completing the well in the Boatwright zone of the Springer formation.This sand zone is in the lower Springer.Offsetting wells in adjacent Sections 3,10, and11 produce from a different zone of the Springer (the Britt) to the west, southwest and south of Section 2.The appellants are operators of these offsetting wells.Section 2 was previously established as a 640 acre drilling and spacing unit for the Morrow and the Springer zones found to be a single common source of supply in previous OrderNo. 121645.

The two applications were referred to a trial examiner for a hearing and report.A portion of the testimony from the hearing is abstracted here.Mr. Neff testified at the hearing for the applicant-appellee that a well drilled to the center of the SW/4 of Section 2 in 1974 in the Britt, produced a show of gas and 80 barrels of salt water.This witness stated the proposed location is desired to test the Britt sand.On cross-examination, Mr. Neff stated that at least 10 and as much as 80 feet of shale separates the Britt and Boatwright and both zones are considered part of the Springer formation.At this point in the testimony, after Mr. Neff had stated that the portion of the Boatwright which overlaps the Britt is invaded with water, the applicant's attorney stipulated that the only portion of the Springer to be tested by the proposed well is the Britt.Mr. Neff stated that Section 2 probably had Britt underlying one-half of its acreage and no present well in the Section was capable of producing from the Britt, but there were currently four wells outside the Section producing from the Britt zone.

The second witness was Mr. Waller.He stated in his testimony that at present there exists no well in Section 2 which could drain the Britt zone.It was his opinion that the requested well is not required to prevent waste since no potential production would be lost in its absence.However, he stated the well is required to protect the correlative rights of the parties inasmuch as there exist four offset wells producing from the Britt on the northwest, west and southwest.This witness stated as production from the Britt continues, the requested well will become uneconomic because reserves from the Britt are being diminished.At the time of the hearing, the total reserves in place under Section 2 were approximately half of the amount originally found under the 300 acres of Britt underlying it.Mr. Waller noted the proposed well would pay out in less than four months at a cost of over $600,000.

In the report, the examiner recommended granting the application with an allowable for the proposed well to be assessed a 50% Penalty.The unit allowable was to be set from the highest open-flow potential of either the proposed well or the previous test of the existing Kaiser-Gilbert well.The recommendation allowed the total unit production to be produced from either well as long as the pattern well (Kaiser-Gilbert) produced no more than 2.45 MMCFD; all parties excepted to the examiner's report.The Commission's finding and order generally follows the trial examiner's recommendation, stating that the applicant has drilled a well in the pattern location of the NW/4 of Section 2 which is producing in the Boatwright zone of the Springer formation and that it is necessary that the applicant be allowed to drill in the SW/4 of the SW/4 to test the Britt zone of the Springer.The reason for the need of the exception is found to be the fact that there are wells producing from the Springer Britt zone in offsetting Sections 3,10and11, operated by Amoco and Texas Pacific and unless the exception is granted, the Britt zone of the Springer under the applicant's land will be drained by the offsets.The order finds that for the protection of correlative rights and prevention of waste, in addition to encouraging the development of the area and the greatest ultimate recovery, the application should be granted.The order authorizes the additional well, assigns a single lease allowable based upon the highest open-flow potential of the two wells, not to exceed 2.45 MMCFD.

Appellant's advance as their first proposition of error the allegation that the Commission erred in allowing two wells to be drilled from a single common source in a single drilling and spacing unit, citing as authority Layton v. Pan American Petroleum Corporation, Okl., 383 P.2d 624(1963).Layton, however, is not authority for the statement that the Commission does not have statutory authority to allow a second well to be drilled in a single spacing unit.In Layton, this Court states that after an order is entered establishing a drilling and spacing unit, no other well may be drilled on that unit without violating that previous order; therefore, the order results in the extension of the primary term fixed in an oil and gas lease if a well on any portion of the unit so formed satisfies the requirements of the thereafter clause.There was no issue raised in Layton pertaining to an application to modify or allow an exception to a previous order or what showing was required to establish a prima facie case in an application for an exception or additional well.We find an express grant of authority to the Commission in the statute in effect that time of the hearing, 52 O.S.1971 § 87.1(c) wherein it is stated:

"The Commission shall have jurisdiction upon the filing of a proper application therefor, and upon notice given as provided in subsection (a) above, to decrease the size of the well spacing units Or to permit additional wells to be drilled within the established units, upon proper proof at such hearing that such modification or extension of the order establishing drilling or spacing units will prevent or assist in preventing the various types of wastes prohibited by statute, or any of said wastes, or will protect or assist in protecting the correlative rights of persons interested in said common source of supply, * * *."(Emphasis added)

Clearly, the quoted portion of the statute allows the Commission to authorize the drilling of an additional well within a drilling or spacing unit upon proof that the additional well or modification of the previous order will assist in preventing waste or the protection of correlative rights of persons interested in the common source of supply.In the order here questioned, the Commission found Inter alia that the granting of a permit to drill the additional well would assist in protecting the correlative rights of the parties.The inquiry then becomes one of whether the order is supported by substantial evidence.French v. Champlin Exploration, Inc., Okl., 534 P.2d 1302(1975).The uncontroverted evidence from the record demonstrates that the Britt and Boatwright are separate sources of supply within the single formation designated as a common source of supply in the previously issued final OrderNo. 121645.The testimony is also uncontroverted in revealing that unless the application made here is granted, the Britt sand underlying Section 2 will be drained by the wells in adjoining Sections 3,10and11, to the detriment of the owners of oil and gas interests in Section 2.The statutory showing necessary for a modification order under 52 O.S.1971 § 87.1(c) is satisfied for purposes of review in this Court when the requested order curtails waste or where it would protect correlative rights.The use of the word "or" to connect these phrases in 52 O.S.1971 § 87.1(c) indicates that the grounds for relief connected thereby are disjunctive, and each is sufficient in itself to authorize the relief requested.Southwest Motor Carriers Corporation v. State, 190 Okl. 491, 125 P.2d 760(1942).The record clearly supports the Commission's finding that the permit to drill an additional well protects the correlative rights of the interested parties by allowing the applicant to offset the drainage from the three surrounding sections by allowing a well to...