Larsen v. Oil and Gas Conservation Commission

• Decision Date: 01 September 1977
• Docket Number: No. 4578,4578
• Citation: 569 P.2d 87
• Parties: John H. LARSEN, Edna Carter and Paul W. Sherard, Appellants (Petitioners below), v. The OIL AND GAS CONSERVATION COMMISSION of the State of Wyoming, Apache Exploration Corporation, Aquarius Resources Corporation, Double U Oil Company, Jake L. Hamon, Owen P. Miles, Jr., Don O. Chapel and Margaret C. Hose, Appellees (Respondents below).
• Court: Wyoming Supreme Court

Page 87

569 P.2d 87

John H. LARSEN, Edna Carter and Paul W. Sherard, Appellants (Petitioners below), v. The OIL AND GAS CONSERVATION COMMISSION of the State of Wyoming, Apache Exploration Corporation, Aquarius Resources Corporation, Double U Oil Company, Jake L. Hamon, Owen P. Miles, Jr., Don O. Chapel and Margaret C. Hose, Appellees (Respondents below).

No. 4578.

Supreme Court of Wyoming.

Sept. 1, 1977.

Motion for Rehearing to Modify and Clarify Opinion Denied Oct. 12, 1977.

George Porter, of Wehrli & Williams, Casper, and E. E. Lonabaugh and Dan B. Riggs, of Lonabaugh, Vanderhoef & Koester, Sheridan, for John H. Larsen and Edna Carter, appellants.

Thomas Morgan, of Morgan & Brorby, Gillette, for Paul W. Sherard, appellant.

William F. Drew and Claude W. Martin, of Brown, Drew, Apostolos, Barton & Massey, Casper, for Apache Exploration Corp., Jake L. Hamon and Don O. Chapel, appellees.

R. R. Bostwick, of Murane, Bostwick, McDaniel, Scott, Greenlee & Owens, Casper, for Aquarius Resources Corp., Double U Oil Co., Owen T. Miles and Margaret Hose, appellees.

William M. Sutton, Sp. Asst. Atty. Gen., Cheyenne, for The Oil and Gas Conservation Commission of the State of Wyoming, appellee.

Before GUTHRIE, C. J., and McCLINTOCK, RAPER, THOMAS and ROSE, JJ.

ROSE, Justice.

This is an appeal from a judgment of the district court affirming an order entered by the Wyoming Oil and Gas Conservation Commission which established eighty-acre drilling units in the North Rainbow Ranch Field, Campbell County, Wyoming. These units were to run horizontally or East-West, except for those located in the SW 1/4 of Section 24, which were to run vertically or North-South. At the conclusion of this opinion is a plat, marked Appendix "A," indicating the area with which we are concerned, with the wells located thereon. Appellants are owners of royalty and overriding royalty interests under leases covering the W 1/2SE 1/4, the SE 1/4SE 1/4, the SW 1/4NE 1/4 and the SW 1/4 of Section 24. Appellee, Apache Exploration Corporation, is the owner of working interests in, and operator of, all wells drilled in the Minnelusa formation within the spaced area. The remaining appellees are owners of working interests under United States oil and gas leases covering the NE 1/4SE 1/4 and other portions of Section 24.

On December 21, 1972, Apache filed an application with the Commission seeking to establish eighty-acre drilling units for the production of hydrocarbons from the Minnelusa formation. The application was based on the discovery of oil and associated hydrocarbons in the NW 1/4NE 1/4 of Section 24. Without notice to the appellants, a hearing on the application was conducted before the Commission on January 9, 1973. On January 18, 1973, the Commission entered an order which established eighty-acre drilling units and provided that wells would be permitted only in the center of the SE 1/4 and the center of the NW 1/4 of each quarter section. This order was made temporary for a period of ninety days because the Commission found that the need for eighty-acre spacing was not yet conclusive. Although not approved by the United States Geological Survey until May 7, 1973, the appellees entered into communitization agreements covering the NE 1/4 and the N 1/2SE 1/4 of Section 24, which were effective February 1, 1973. During February, 1973, producing wells were completed in the S 1/2NE 1/4 and the S 1/2NW 1/4 of Section 24, and a dry hole was encountered in the W 1/2 SW 1/4. On April 1, 1973, a producing well was completed in the NW 1/4SE 1/4. It is this well which is at the center of the present controversy. On its own motion, the Commission called a hearing to review its original order, which was conducted on April 10, 1973. Again, appellants were not personally notified of the hearing, but they did appear to object to a continuation of the prior order, especially as it related to the horizontal drilling units in the SE 1/4 of Section 24. Appellants' objection to the spacing-unit direction was premised on a belief that the two forty-acre tracts comprising the N 1/2SE 1/4 of Section 24 did not contribute equally to the well located in the NW 1/4SE 1/4. On April 23, 1973, the Commission affirmed its previous order. Pursuant to an application made by Apache, the Commission force-pooled all interests in the N 1/2SE 1/4 of Section 24.

The appellants' petition for review of the April 23 order culminated in a judgment, entered by the district court on January 16, 1974, which declared the Commission's orders of January 18 and April 23, 1973, to be void and of no further force or effect, and remanded the matter to the Commission for rehearing, with the direction that all evidence in existence at the time of the new hearing should be considered. Subsequently, appellees Aquarius and Double U filed their application for a reestablishment and continuation of the drilling units referred to previously. On the basis of this application and its own motion, the Commission held another hearing on July 16 and 19, 1974, at which time all interested parties presented evidence and argument. Some of the evidence presented at this hearing will be discussed in the course of this opinion. On August 13, 1974, the Commission entered findings of fact and conclusions of law, which in effect continued the previously-established drilling and spacing units. Appellants again filed a petition for review of the Commission's decision. On June 23, 1975, the district court entered its order summarily affirming the decision. The matter is now before this court for disposition.

On appeal, appellants raise essentially four issues, which are stated as follows:

"I.

"The Commission acted without (sic) and in excess of its powers when it ordered a drilling and spacing unit established in the N 1/2 of the SE 1/4 of Section 24 as such order does not protect the correlative rights of all the property owners and does not prevent or assist in the prevention of waste."

"II.

"The Commission acted without authority and in excess of its powers when it ordered a drilling and spacing unit established in the N 1/2 of the SE 1/4 of Section 24 when all evidence showed that the unit well was efficiently draining a much larger area and the Commission's findings of fact demonstrate that the unit well is draining more than 80 acres, thus making the order void on its face."

"III.

"The Commission acted without authority and in excess of its powers when it entered the spacing order in this case and made it retroactive for a period of eighteen months, when the oil produced from the well located on appellants' lands had become the personal property of and belonged absolutely to the owners of the interests of the tract on which the oil was produced."

"IV.

"An order of the Commission establishing a drilling and spacing unit, even if valid, does not operate to pool the interests within the unit unless there is a voluntary communitization agreement or a valid compulsory pooling order."

With respect to the first issue, appellants contend that the Commission's Conclusion of Law No. 8 is not supported by findings of underlying or basic facts. Conclusion of Law No. 8 states:

"Eighty (80) acre drilling and spacing units will protect correlative rights of each owner (as that term is defined by Sec. 30-216(e), (sic) (should be § 30-216(i) ) Wyoming Statutes 1957) in the field and will prevent or assist in preventing the various types of waste defined in the Oil and Gas Conservation Act."

We agree with appellants' observation and, therefore, will remand the case for further findings of fact; and inasmuch as the case is not yet ripe for review, we will not reach the remaining issues.

The authority of the Commission to establish drilling and spacing units is set forth in § 30-221(a), W.S.1957, C.1967, 1975 Cum.Supp., which states:

"When required, to protect correlative rights or, to prevent or to assist in preventing any of the various types of waste of oil or gas prohibited by this act (§§ 30-216 to 30-231), or by any statute of this state, the commission, upon its own motion or on a proper application of an interested party, but after notice and hearing as herein provided shall have the power to establish drilling units of specified and approximately uniform size covering any pool." (Emphasis supplied)

The statutory language mandates that before a drilling unit can be established, the Commission must first find that such a unit is necessary to protect correlative rights ¹ or to prevent waste. ² After this initial determination is reached, the Commission must also determine the acreage to be embraced within each unit and the shape thereof based on evidence adduced at the hearing but each unit "shall not be smaller than the maximum area that can be efficiently drained by one well." § 30-221(b), W.S.1957, C.1967. The process of making these various findings and decisions is constrained, however, by fundamental rules of administrative law.

Section 9-276.28, W.S.1957, 1975 Cum.Supp., provides that the final decision of an administrative agency "shall include findings of fact and conclusions of law separately stated." The same section goes on to say that "(f)indings of fact if set forth in statutory language, shall be accompanied by a concise and explicit statement of the underlying facts supporting the findings." The first of these requirements imposes a duty on the agency to make findings of basic facts upon which its ultimate findings of fact or conclusions are based and without which there can be no "rational basis for judicial review." Pan American Petroleum Corporation v. Wyoming Oil and Gas Conservation Commission, Wyo., 446 P.2d 550, 555. In Pan American Petroleum Corporation we said:

"To aid a reviewing court in the performance of such a function and other limited functions assigned to it by § 14(c) of the Administrative Procedure Act, Ch. 108, S.L. of Wyoming, 1965 (§ 9-276.32(c), W.S.1957, 1967 Cum.Supp.),...