Kingwood Oil Co. v. Corporation Commission

• Decision Date: 10 November 1964
• Docket Number: No. 40572,40572
• Citation: 396 P.2d 1008
• Parties: KINGWOOD OIL COMPANY, a Corporation, Plaintiff in Error, v. CORPORATION COMMISSION of the State of Oklahoma, and Cleary Petroleum, Inc., Defendants in Error.
• Court: Oklahoma Supreme Court

Page 1008

396 P.2d 1008

1964 OK 241

KINGWOOD OIL COMPANY, a Corporation, Plaintiff in Error, v. CORPORATION COMMISSION of the State of Oklahoma, and Cleary

Petroleum, Inc., Defendants in Error.

No. 40572.

Supreme Court of Oklahoma.

Nov. 10, 1964.

Syllabus by the Court

1. 'Correlative rights' is a convenient term for indicating that each owner of land in a common source of supply of oil and gas has legal privileges as against other owners of land therein to take oil and gas therefrom by lawful operations conducted on his own land, limited, however, by duties to other owners not to injure the source of supply and by duties not to take an undue proportion of the oil and gas.

2. By due process of law is meant an orderly proceeding adapted to the nature of the case, before a tribunal having jurisdiction, which proceeds upon notice, with an opportunity to be heard, with full power to grant relief.

3. An order of the Corporation Commission on appeal to the Supreme Court will be affirmed if sustained by the law and substantial evidence.

Application by Cleary Petroleum, Inc., to the Corporation Commission of Oklahoma, for an increased allowable for its Penner No. 1 well. From the order of the Commission granting the application, Kingwood Oil Company appeals. Affirmed.

C. A. McKenzie, J. S. Gill, Oklahoma City, for plaintiff in error.

Monnet, Hayes, Bullis, Grubb & Thompson, Oklahoma City, for defendant in error Cleary Petroleum, Inc.

Cecil Munn, Fort Worth, Tex., Nathan Scarritt, Enid, T. Murray Robinson, Oklahoma City, amici curiae, Champlin Oil & Refining Co.

Ferrill H. Rogers, Conservation Attorney, Oklahoma City, for defendant in error Corporation Commission of Oklahoma.

JACKSON, Justice.

This is an appeal by Kingwood Oil Company from on Order of the Corporation Commission entered after proceedings initiated there by Cleary Petroleum, Inc., for the purpose of obtaining an increased allowable for Cleary's Penner No. 1 well located in the SE 1/4 of Sec. 8, Township 2 North, Range 21 ECM, Beaver County, Oklahoma. Before beginning the proceedings, Cleary had obtained an agreement from the owners of all the royalty under said southeast quarter not to demand the drilling of another well on the quarter section (which was subject to an 80-acre drilling and spacing order) in case Cleary should be successful in obtaining an increased allowable for Penner No. 1 from the Commission.

Pertinent portions of the findings and order of the Commission are as follows:

'1. That this is an application of Cleary Petroleum, Inc., for an order establishing allowable for the Lower Member of the Upper Morrow Sand common source of supply in its Penner No. 1 well * * *.

'* * *

'5. The Lower Member of the Upper Morrow Sand common source of supply * * * underlies all of the SE/4 of Section 8 * * *. The Penner No. 1 well will effectively drain all of the economically recoverable hydrocarbons from the Lower Member of the Upper Morrow Sand common source of supply underlying said SE/4 of Section 8. The expected recovery of oil and gas from said common source of supply producing from the Penner No. 1 Well is not sufficient to justify the drilling of a second well on said quarter section to said common source of supply.

'* * *

'7. That in the interest of securing the greatest ultimate recovery of oil and gas from the pool, in order to prevent waste, and to protect the correlative rights, this application should be granted.'

The Commission then granted Clearly an allowable 'for the Lower Member of the Upper Morrow Sand common source of supply found in its Penner No. 1 well in the SE/4 of the SE/4 of the SE/4 of Section 8 * * * of 180 per cent of the regularly assigned allowable for an 80-acre unit * * *'. The order further provided that the increased allowable should apply only so long as no more than one well was producing from the common source of supply in the southeast quarter.

Kingwood Oil Company, the appellant, was the owner of an oil and gas lease on the northwest quarter of Section 16, offsetting the Cleary lease diagonally to the southeast. Kingwood had drilled two wells on its lease, which produced from the same common source of supply, and was subject to the same 80-acre drilling and spacing order, as Cleary's Penner No. 1 well. Kingwood had appeared in opposition to Cleary's application, and now appeals from the Commission's order, presenting five propositions.

The first one is to the effect that the order of the Commission violates the correlative rights of Kingwood.

Under this proposition Kingwood argues (1) that it has 'the correlative right to produce as many wells upon its unit as does Cleary upon its unit' and (2) that Kingwood is entitled to deplete its share of the reservoir at a rate commensurate with that of Cleary.

The term 'correlative rights' has been defined as a convenient method of 'indicating that each owner of land in a common source of supply of oil and gas has legal privileges as against other owners of land therein to take oil and gas therefrom by lawful operations conducted on his own land, limited, however, by duties to other owners not to injure the source of supply and by duties not to take an undue proportion of the oil and gas'. Summers, Oil and Gas, Vol. 1, Sec. 63.

Under this definition of 'correlative rights', cited by Kingwood in its brief, we find no guarantee as to the number of wells to be drilled, or as to the relative rates at which each owner is entitled to deplete his share of the reservoir. The right of the individual owner to take oil or gas from the reservoir in lawful operations is limited only by a duty to other owners (1) not to injure the source of supply and (2) not to take a disproportionate part of the oil and gas.

Kingwood does not argue, and the record does not show, that the common source of supply would be injured by Cleary's operations under the Commission order. As to whether Cleary would be getting an undue proportion of the oil and gas, we note that under the order, Cleary would be permitted to produce from its 160 acre lease only 180 barrels of oil for every 200 barrels produced by Kingwood from its lease of the same size. The fact that Kingwood must produce its oil from two wells, while Cleary produces from only one, is not, under the circumstnaces in this case, of controlling consideration. These pertinent circumstances will be detailed hereinafter. It may be observed at this point that all of the arguments advanced by Kingwood are based, directly or by inference, upon the proposition that under Oklahoma statutes as construed by this court, allowables established by the Commission must be exclusively on a 'per well' basis, with no other factors considered. As will be seen hereinafter, this is not necessarily true. The two cases cited by Kingwood under its first proposition, In the Matter of the Application of Peppers Refining Co., Okl., 272 P.2d 416, do not support the argument that Kingwood's correlative rights have been violated.

Kingwood's second proposition is that the Commission order violates Oklahoma statutes which authorize the Commission to so regulate the taking of oil from a common source of supply as to prevent the 'inequitable or unfair taking' of oil from the common source of supply. As is evident, this argument is based upon the assumption that the order under review would authorize an inequitable or unfair taking by Cleary. This assumption is in turn based upon the assumption that our statutes require proration of oil to be solely on a 'per well' basis among the wells producing from a common source of supply, withour regard to the number of wells being operated by any given producer, or any other factor. In support of this argument, Kingwood cites 52 O.S.1961, § 274, and Wilcox Oil and Gas Co. v. State, 162 Okl. 89, 19 P.2d 347, 86 A.L.R. 421. The statute cited is a portion of a 1915 act prohibiting wasteful production of oil or petroleum and providing for proration of market demand among wells producing form any common source of supply. The Wilcox case, decided in February, 1933, construed the 1915 act, which had no well-spacing provisions, and did not limit the number of wells that might be drilled. It may be conceded that under the 1915 act and the Wilcox case, allowable production was of necessity on a 'per well' basis. However, two months later our legilsature enacted the first well-spacing act which, as subsequently amended, now appears as 52 O.S.1961, § 87.1 et seq. Various sections of the well-spacing act plainly authorize the Commission to consider many factors in establishing a well spacing or drilling unit. See 52 O.S.1961, Sec. 87.1(b). Sec. 87.1(b) of the well speacing act also...