Louisiana Land and Exploration Co. v. Wyoming Oil and Gas Conservation Com'n

• Decision Date: 18 April 1991
• Docket Number: No. 90-82,90-82
• Citation: 809 P.2d 775
• Parties: The LOUISIANA LAND AND EXPLORATION COMPANY, Petitioner (Plaintiff), v. The WYOMING OIL AND GAS CONSERVATION COMMISSION, Respondent (Defendant), and Woods Petroleum Corporation, Respondent (Intervenor).
• Court: Wyoming Supreme Court

Page 775

809 P.2d 775

The LOUISIANA LAND AND EXPLORATION COMPANY, Petitioner (Plaintiff), v. The WYOMING OIL AND GAS CONSERVATION COMMISSION, Respondent (Defendant) and Woods Petroleum Corporation, Respondent (Intervenor).

No. 90-82.

Supreme Court of Wyoming.

April 18, 1991.

S. Thomas Throne, Sheridan, for petitioner.

Joseph B. Meyer, Atty. Gen., Joe Scott, Senior Asst. Atty. Gen., Casper, for respondent Wyoming Oil and Gas Conservation Com'n.

Craig Newman of Brown & Drew, Casper, for respondent Woods Petroleum Corp.

Before URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, JJ.

URBIGKIT, Chief Justice.

This appeal provides a geographical and geologically related conflict to the oil and gas well production controversy considered in ANR Production Co. v. Wyoming Oil and Gas Conservation Com'n, 800 P.2d 492 (Wyo.1990). We are presented with, following a June 1989 hearing, a Wyoming Oil and Gas Conservation Commission (Commission) shut down order for a producing oil and gas well drilled by petitioner, Louisiana Land and Exploration Company (LL & E), to the Second Bench of the First Frontier Formation in the Powell Unit. The basic issue pursued on appeal is the Commission's procedure in denial of a motion for rehearing based on newly discovered evidence or, alternatively, this court's authority to remand for additional evidence to be produced to provide a supplemental record.

We remand for additional hearing.

As this court discussed in the parallel case of ANR Production Co., this litigation results from the 1983 establishment of the Powell Pressure Maintenance Unit (PPMU) which produced from the First Bench; while in that case, ANR Production Co. and, in this case, LL & E, produced wells from the Second Bench. This well, Devex 32-11, was drilled in the summer of 1984 in the border area surrounding the PPMU. At the drill site, the First Bench of the First Frontier Formation utilized in the pressure maintenance unit was not present in producing capacity and the well was developed into the productive Second Bench sand which is geologically located approximately fifty feet lower in the formation.

The Devex 32-11 well was productive from 1984 until the summer of 1988 when unusual production characteristics were noted. Woods Petroleum Corporation, as a PPMU unit operator, was notified. Hearings were then also underway for the well discussed in the ANR Production Co. case. On May 18, 1989, Woods Petroleum filed its application to shut down the Devex 32-11 well pursuant to allegations that the Devex 32-11 well was in communication with the oil production sand being pressurized into secondary recovery through the PPMU. The application was served on LL & E on May 30, 1989 and a hearing was held less than two weeks later on June 13, 1989. The Commission, immediately after the hearing, entered an interim order shutting down the Devex 32-11 well.

It is what happened immediately after the June 13 hearing that presents the issues of this appeal in contention of procedural abuse of discretion when the Commission denied an opportunity for a rehearing to the well owner based on newly discovered evidence and the record supplementation request addressed to and unanswered by the district court before certification by-pass to this court. ¹

We determine this case on a narrow basis in remanding to the Commission for a further hearing to permit LL & E to present its evidence which relates to the claimed invalidity of the expert witness computer simulator model produced by Woods Petroleum for the Commission hearing.

LL & E advances its contention regarding the controversy in briefing:

At the June 13, 1989 hearing, Woods surprised Petitioner/LL & E by presenting technical evidence through expert testimony (apparently developed long before Petitioner/LL & E was notified of the hearing) that the fracture treatment of the Devex 32-11 allegedly created communication between the First Bench Reservoir and the Second Bench in the vicinity of the Devex 32-11 well bore * * *. In order to overcome the factual absence of the First Bench reservoir in the well bore of the Devex 32-11, Woods' expert witness hypothesized the existence of the First Bench reservoir of the First Frontier to be within twenty-two feet of the Devex 32-11 well bore. This conclusion was reached by use of a computer simulation model by Dr. Holditch * * *. Because of the high permeability of the First Bench reservoir in the PPMU, Woods expert, Dr. Holditch, indicated he could only obtain a history match with available data, using his computer simulation, by hypothesizing the existence of the First Bench within twenty-two feet of the Devex 32-11 well bore * * *. To reach his conclusion, Dr. Holditch used all of the data points obtained in a 1984 transient test of the Devex 32-11 as well as the base reading from a 1984 flow test on the Devex 32-11 * * *.

Immediately after the conclusion of the June 13 hearing, LL & E undertook a study of the hearing evidence and now contends that a portion of the pressure transient test used in the study was faulty and the input data used for simulation was wrong, producing erroneous computer output. Upon discovery of the alleged error, LL & E immediately filed an application for rehearing with the Commission to secure an opportunity to present newly discovered and additional evidence relating to contention of faulty data in the computer simulation. Essentially, the claimed error is alleged to relate to mechanical mistakes in process and failure to recognize in simulation the drilling mud characteristics used when the original well had been drilled.

In October, a hearing was held to consider the application for rehearing and the Commission, by application denial, refused to allow any evidence or testimony regarding the newly discovered evidence. LL & E took its adverse ruling on the motion for rehearing to the district court by a petition for review and the proceeding was then certified to this court pursuant to W.R.A.P. 12.09, without further evidence being presented. See ANR Production Co., 800 P.2d 492. Cf. Natrona County School Dist. No. 1 v. McKnight, 764 P.2d 1039, 1047 n. 7 (Wyo.1988).

LL & E contends in basic argument that the Commission was arbitrary and in abuse of discretion in denial of the motion for rehearing since the time from initial notice for hearing through hearing date of less than a month and without notice of the proposed simulation report afforded no realistic opportunity for preparation and defense. It is argued that upon discovery of the contended error in the submission, a further hearing should have been afforded in order to provide a bilateral opportunity to present evidence on computer simulation model testimony to the Commission. Conversely, Woods Petroleum contends that LL & E was an actual participant in the ANR Production Co. proceeding and should have been informed and prepared as a result of the knowledge gained in that earlier course of Commission hearings so that a rehearing on the present case is unnecessary to provide a fair opportunity to defend.

Some development of these matters is necessary and advisable in Woods' view to correct the otherwise misleading impression one might gain upon reading the Brief of LL & E that the instant controversy developed all of a sudden and out of nowhere with the Application by Woods of May 18, 1989, and the hearing before the Commission on June 13, 1989, and further to rebut certain purely factual arguments by LL & E that it was surprised by a computer simulation and expert evidence introduced by Woods at the June 13, 1989, hearing before the Commission.

The transcript of proceedings in Docket No. 48-89, already before this Court in Case Nos. 89-276 and 89-277 [ANR Production Co., 800 P.2d 492], reveals that procedurally the Devex Well, though not the focus of the March, 1989, Commission proceeding, was the subject of considerable evidence and testimony at the March, 1989, hearing of the Commission concerning another well which is before this Court in Case Nos. 89-276 and 89-277. Further, the transcript of the March, 1989, proceeding before the Commission will reveal that LL & E not only appeared through counsel and witnesses but further that LL & E participated fully in the March, 1989, proceeding and examined not only its own witnesses but the witnesses of the other parties involved in that hearing.

Accordingly, Woods believes that the Statement of the Case of both LL & E and the Commission needs to be supplemented so that the Court is aware that the Commission became aware of the Devex Well and the alleged problems concerning that well as early as March of 1989, some three months before the hearing in Docket No. 166-89, before the Court in the instant matter, and further that the Appellant in this cause participated fully in that earlier proceeding.

The generic factual situation which permeates these cases, and this one in particular, is the consideration that communication between the two benches for augmenting production in the Devex 32-11 well may develop in two separate ways. In the first instance, the Devex 32-11 well and its production methods may have opened up communication into the First Bench in the immediate vicinity of the well site. In the second instance, the activities of ANR Production Co. or any other wells in the entire area that may have been drilled into the Second Bench opened up communication so broadly between the two benches that the Devex 32-11 well became the beneficiary of the gas pressurization which was leaking at other well sites as communication between the two benches.

The procedural problem is that nothing indicates that the Commission took judicial notice of information obtained in the ANR Production Co. hearings in order to render the decision in this case. Cockreham v. Wyoming Production Credit Ass'n, 743 P.2d 869 (Wyo.1987). Cf. Texas West Oil and Gas Corp. v. First Interstate Bank of Casper, 743 P.2d...