Hunter Co. v. McHugh

• Decision Date: 30 November 1942
• Docket Number: 36653.
• Citation: 202 La. 97,11 So.2d 495
• Court: Louisiana Supreme Court
• Parties: HUNTER CO., Inc., et al. v. McHUGH.

11 So.2d 495

202 La. 97

HUNTER CO., Inc., et al.
v.
McHUGH.

No. 36653.

Supreme Court of Louisiana

November 30, 1942

Rehearing Denied Dec. 30, 1942. [11 So.2d 496]

[202 La. 101] Edward L. Gladney, Jr., of Bastrop, for defendant and appellant.

Cawthorn & Golsan, of Mansfield, F. A. Bodovitz, of Tulsa, Okl., and Wilkinson, Lewis & Wilkinson, of Shreveport, for plaintiff and appellee.

Blanchard, Goldstein, Walker & O'Quin, of Shreveport, and Thompson & Thompson, [202 La. 102] of Monroe, for Southern Production Co., Inc., intervenor.

Taylor, Porter, Brooks & Fuller, of Baton Rouge, Grimmet, Boatner, Simon & Carroll, of Shreveport, and Marion J. Epley, Jr., Chas. H. Blish, and Richard S. Lake, all of New Orleans, amici curiae.

Liskow & Lewis, of Lake Charles, DeBaillon, Bailey & Mouton, of Lafayette, and LeDoux R. Provosty, of Alexandria, amici curiae.

Eugene Stanley, Atty. Gen., Edward J. Gay, Jr., Sp. Asst. Atty. Gen., and C. C. Wood, Sp. Asst. Atty. Gen., amici curiae.

Oliver & Digby and Shotwell & Brown, all of Monroe, amici curiae.

R. L. Benoit and J. P. D'Artois, both of Shreveport, amici curiae.

Cook, Lee, Clark & Egan, of Shreveport, amici curiae.

J. Howard Marshall Chief Counsel, Petroleum Administration for War, of Washington, D. C., and George A. Wilson, of Shreveport, amici curiae.

O'NIELL, Chief Justice.

This suit was brought to have the conservation statute, Act. No. 157 of 1940, declared unconstitutional, and to annul an order of the Commissioner of Conservation, called Order 28-B.

Act No. 157 of 1940 is the statute which, in a very thorough and comprehensive way, regulates the conservation of the oil and gas resources of the state. Order 28-B was issued by the Commissioner on October 16, 1941, under the provisions of sections [202 La. 103] 8(b) and 9(a) of Act No. 157 of 1940, to regulate the production of gas from what is called the Jeter zone, in the Logansport gas field, in De Soto Parish. The suit was brought by the Hunter Company, Inc., and the Superior Oil Corporation, each owning oil and gas leases in the Logansport field. Their complaint had reference specifically to the establishing of compulsory drilling units in the gas field. The plaintiffs asked for an injunction to prevent the Commissioner of Conservation from putting Order 28-B into effect. When the case came on for trial, and before any evidence was offered, the Superior Oil Corporation moved for and was granted a voluntary nonsuit, on the ground that the corporation had disposed of its interest in the matter. Thereafter the Southern Production Company, Inc., owning acreage in the area to be affected by Order 28-B, intervened in the suit, on the side of the Commissioner of Conservation, [11 So.2d 497] in defense of the Constitutionality of Act No. 157 of 1940 and of the constitutionality and legality of Order 28-B. After hearing the evidence the judge gave judgment for the Hunter Company, granting the writ of injunction and declaring Act No. 157 of 1940 unconstitutional, and annulling Order 28-B. The Commissioner of Conservation and the Southern Production Company are appealing from the decision.

The Hunter Company drilled the first well to produce gas from what is called the Jeter zone, in the Logansport field. The well is on a 190-acre lease owned by the Hunter Company. The well was completed on June 1, 1938, costing approximately $44,000. Thereafter the company constructed [202 La. 104] its own pipe line, at a cost of $12,380.16, to a line owned by the United Gas Pipe Line Company, and commenced delivering gas to that company on December 12, 1940. Meanwhile the Southern Production Company had acquired extensive leases in the Logansport field and drilled several producing gas wells in the Jeter zone, from which the company transported gas through its own pipe line to industrial and domestic markets in the southeastern states, as far east as Alabama. According to the evidence adduced at the hearings before the Commissioner, and the evidence heard on the trial of this suit, the Jeter zone in the Logansport field is found at a depth ranging from 4450 to 4650 feet; the field has an area of approximately 17,000 acres--possibly 25,000 acres, about 40 per cent of the field being on the Texas side and about 60 per cent on the Louisiana side of the Sabine River.

Order 28-B was issued after the holding of several protracted hearings on the subject, and the taking of the testimony of several geologists and other experts, including the state geologist. These hearings were held after due publication of the notices required by the statute, and were attended by the attorneys representing the Hunter Company and by attorneys and experts representing all parties having an interest in the proposed order. The result of the hearings and investigations was that a drilling unit of 320 acres was established by the Order 28-B, with the requirement that the locations of the wells should be approximately in the center of each 320-acre drilling unit.

[202 La. 105] It appears that an order similar to Order 28-B, and called Order No. 28, was adopted and promulgated on June 27, 1941, by the officer whose official title was then Director of the Department of Minerals, and is now Commissioner of Conservation. For reasons which are not relevant to any question in this case the Order No. 28 was rescinded, and, with some minor changes, the new order, called Order 28-B, was substituted.

The Order 28-B was issued and promulgated in conformity with the provisions of Section 8(b) and Section 9(a) of Act No. 157 of 1940. The most thorough investigation that science afforded was had for the purpose of establishing a correct drilling unit, by determining the maximum area which might be drained efficiently and economically by one well, as required by Section 8(b) of the statute.

The contention of the Hunter Company is that the company should be permitted to produce from its well on the 190-acre lease the allowable measured according to the provisions of section 3 of Act No. 252 of 1924, and that so far as Order 28-B requires the company to pool or unitize the 190-acre lease with sufficient acreage to conform with the 320-acre unit, the order is unconstitutional.

Section 8(b) of Act No. 157 of 1940 provides: 'For the prevention of waste and to avoid the drilling of unnecessary wells, the Commissioner shall establish a drilling unit or units for each pool, except in those pools which, prior to the effective date of this Act, have been developed to an extent and where conditions are such [202 La. 106] that it would be impracticable or unreasonable to use a drilling unit at the present stage of development. A drilling unit, as contemplated herein, means the maximum area which may be efficiently and economically drained by one well, and such unit shall constitute a developed area as long as a well is located thereon which is capable of producing oil or gas in paying quantities.'

Section 9(a) of the statute provides: 'When two or more separately owned tracts of land are embraced within a drilling unit which has been established by the Commissioner as provided for in Section 8 (b), the owners thereof may validly agree to pool their interests and to develop their lands as a drilling unit. Where, however, such owners have not agreed to pool their interests, the Commissioner shall, if found by him to be necessary for the prevention of waste or to avoid the drilling of unnecessary [11 So.2d 498] wells, require such owners to do so and to develop their lands as a drilling unit. All orders requiring such pooling shall be made after notice and hearing, and shall be upon terms and conditions that are just and reasonable, and will afford to the owner of each tract the opportunity to recover or receive his just and equitable share of the oil and gas in the pool without unnecessary expense, and will prevent or minimize reasonable avoidable drainage from each developed tract which is not equalized by counter drainage. The portion of the production allocated to the owner of each tract included in a drilling unit formed by a pooling order shall, when produced, be considered as if it had been produced from such tract by a well drilled [202 La. 107] thereon. In the event such pooling is required, the cost of development and operation of the pooled unit chargeable by the operator to the other interested owner or owners shall be limited to the actual expenditures required for such purpose, not in excess of what are reasonable, including a reasonable charge for supervision. In the event of any dispute relative to such costs, the Commissioner shall determine the proper costs, after due notice to all interested parties and hearing thereon.'

The term 'waste' is defined in Section 2(a) of the statute, as having, besides its ordinary meaning, the meaning 'physical waste', as that term is generally understood in the oil and gas industry; and the meaning is said to include the inefficient, excessive or improper use or dissipation of reservoir energy, 'and the location, spacing, drilling, equipping, operating or producing of any oil or gas well or wells in a manner which results, or tends to result, in reducing the quantity of oil or gas ultimately recoverable from any pool in this state.'

In the judgment appealed from, the grounds on which Act No. 157 of 1940 is declared unconstitutional are stated in four paragraphs; but in reality there are only two reasons given by the trial judge for finding the act unconstitutional. The first reason is said to be that by Act No. 157 of 1940 the Legislature has attempted to delegate to the Commissioner of Conservation the legislative power to adopt rules and regulations pertaining to drilling units, without a definite pattern or plan [202 La. 108] being first adopted and established by the Legislature. The other reason for the judge's finding that Act No. 157 of 1940 is unconstitutional is said to be...