Magnolia Petroleum Co. v. Railroad Commission

• Decision Date: 07 April 1937
• Docket Number: No. 8612.,8612.
• Parties: MAGNOLIA PETROLEUM CO. v. RAILROAD COMMISSION OF TEXAS et al.
• Court: Texas Court of Appeals

105 S.W.2d 787

MAGNOLIA PETROLEUM CO. v. RAILROAD COMMISSION OF TEXAS et al.

No. 8612.

Court of Civil Appeals of Texas. Austin.

April 7, 1937.

Rehearing Denied April 28, 1937.

Dissenting Opinion May 6, 1937.

Appeal from District Court, Travis County; Ralph W. Yarbrough, Judge.

Suit by the Magnolia Petroleum Company against the Railroad Commission of Texas and another. From an adverse judgment, plaintiff appeals.

Reversed and rendered in part, and in part reversed and remanded, with instructions.

W. H. Francis and Walace Hawkins, both of Dallas, and Greenwood, Moody & Robertson, of Austin, for appellant.

Wm. McCraw, Atty. Gen., and Harry S. Pollard, Asst. Atty. Gen., for appellee Railroad Commission of Texas.

Upchurch & Hooper and Willis E. Gresham, all of Austin, for appellee Century Refining Co.

Truman Warren, of Tyler, for other appellee.

BAUGH, Justice.

This is a rule 37 case. The Railroad Commission, on April 29, 1936, granted to the Century Refining Company a permit as an exception to rule 37, to drill a well on a narrow strip of land containing 1.6 acres in the East Texas field in Rusk county. This strip ran east and west, being 1,094 feet long, 47.5 feet wide at its west end, and 25 feet wide at its east end. Adjoining it on the north is the 41.7-acre lease of the Ward Oil Corporation; and on the south a 17-acre lease of the Magnolia. The well in question was authorized 401 feet west of the east end of this strip and midway between its north and south boundaries. The permit recited that same was granted to prevent confiscation of property.

The Magnolia, which protested the application before the commission, brought this suit to set aside the permit and enjoin the drilling or operation of said well. From an adverse judgment against it in a trial to the court on the merits without a jury, the Magnolia has appealed.

The Magnolia asserted the invalidity of said permit, among others, on the ground that the owners had voluntarily segregated this 1.6-acre tract from the 41.7-acre tract to the north of it, capable of development as a whole without exceptions, after rule 37 became applicable to this field; that the Railroad Commission had on February 12, 1935, denied the application of the Century Refining Company for a permit to drill two wells on this same strip of land on the ground that it was a voluntary subdivision, that no material change in conditions had occurred between the date of such denial and the date of the second application, and that such denial therefore became res adjudicata of the second application; that the well in question, being only about 20 feet from the lines of the leases to the north and south, would require the drilling of equidistant offsets on each side in order to prevent drainage, and so create such a density of drilling as to cause great waste; that title to this strip together with another similar strip to the east of the 41.7-acre tract was acquired by limitation prior to the lease thereof by the owners for oil, the two strips aggregating in area 5.57 acres, and having been segregated from the 41.7-acre tract, should be treated as one tract; and, since the strip to the east of the 41.7-acre tract, which adjoins the east end of this 1.6-acre tract, already had two producing wells thereon which afforded a fair opportunity to recover an amount of oil equal in quantity to that in place beneath the entire 5.57 acres acquired by limitation and segregated from the 41.7-acre tract, that no additional wells were necessary on either strip of land to prevent confiscation.

The attached map shows the various tracts and the location of producing wells thereon. The circle near the center of said map indicates the location of the well here in controversy: NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The ownership of the lands in question is somewhat involved. W. B. Giles acquired fee title to the 41.7-acre tract in 1877. He was married at that time, and to him and his first wife, who died in 1886, were born seven children. He subsequently married again and of the second marriage were born four children. All of said children are still living. W. B. Giles died intestate in November, 1929, but shortly prior thereto he and his second wife conveyed to two of his children by his second wife, C. C. and J. E. Giles, an undivided 1/2 interest in the 41.7-acre tract, with the proviso that any excess therein should be owned jointly by all of his eleven children. On May 20, 1930, C. C. and J. E. Giles executed an oil and gas lease on the 41.7 acres which, by proper assignments, is now owned by the Ward Oil Corporation. On February 4, 1931, in a partition suit to which all of said children were parties, an agreed judgment was entered, setting aside to C. C. and B. F. Giles the 41.7-acre tract; and to all eleven of said children jointly the excess (which includes the strip of land here involved) over and above the 41.7 acres. As stated, the title to this excess was acquired by W. B. Giles, the father, by limitation which ripened into title prior to 1919. On October 27, 1934, all of said children joined in a lease of this strip of land to the Century Refining Company. Lease had already been executed by the Giles heirs in 1932 on the strip acquired by limitation to the east of the 41.7-acre tract, two wells drilled thereon, and the agreed facts show that the title to that strip is in litigation. Prior to the partition, therefore, it appears that the seven children by the first marriage inherited a half interest in the 41.7-acre tract upon the death of their mother; that two of the children of the second marriage owned the other half interest therein through a conveyance from their father; and that all the eleven children and the surviving wife (the character and extent of whose interest therein not being here in question) owned jointly the strip of land here involved. In a suit between the Ward Oil Corporation, as plaintiff, and the Century Refining Company and the Giles heirs as defendants, the Ward Oil Corporation was awarded a 2/11 interest (obviously acquired through C. C. and B. E. Giles) in the lease on this 1.6-acre tract, and the Century Refining Company a 9/11 interest therein. Thereupon a working agreement with reference to the drilling of said well by the Century Refining Company on the 1.6 acres, and its operation thereafter by the Ward Oil Corporation, was entered into between these two corporations on February 11, 1936, prior to the granting of the permit here in controversy.

We do not understand appellees to contend that the partition agreement of February 4, 1931, did not constitute a subdivision of the strip in question from a larger tract under common ownership capable of development as a whole without the necessity of exceptions to rule 37, but their argument is that because of the working agreement made between the Ward Oil Corporation and the Century Refining Company, this strip, for development purposes, should be treated as if it were a part of the Ward 41.7-acre tract; and that when so considered under our holding in Humble Oil & Refining Co. v. Railroad Commission, 68 S.W.(2d) 625, because of the number of wells thereon, as compared with the number on surrounding leases, including the 17-acre lease of the Magnolia, they are entitled to more wells than had been drilled on such aggregate acreage, in order to obtain their fair share of the oil in place beneath it. That is, that if the 41.7 acres plus the limitation title strip to the east containing 3.96 acres on which there are two wells, and the strip of 1.6 acres here involved, without the well in issue, be treated as one tract, there are only nine wells thereon, or a density of one well to more than 5 acres. Whereas, on the Magnolia tract of 17 acres to the south there are six wells, a density of one well to 2.86 acres; and on the Ortiz lease to the east eight wells on 16.12 acres.

If the well in question had been authorized on this basis and had been located accordingly, this theory might be sustained. But the well in question was not so applied for nor was it so granted. Had the Ward Oil Corporation (which owned a 2/11 interest in the Century's lease on this strip, in addition to its lease on the 41.7-acre tract) joined with the Century Refining Company's application with such objective, a different situation would be presented. But only the Century Refining Company sought a permit, and that for the development of the 1.6-acre tract only; and this application was protested by the Ward Oil Corporation before the commission. The working agreement between the two corporations clearly discloses that its purpose was, not to enable the Ward Oil Corporation to secure a greater development of its 41.7-acre tract, but to protect its 2/11 interest in the 1.6-acre lease against the Century Refining Company in the latter's development of that tract. We find nothing in this agreement to prevent the Ward Oil Corporation from seeking an offset to the well in question on the north to prevent undue drainage of its tracts, just as the Magnolia would probably do on the south. The record clearly discloses we think, that the confiscation which the commission undertook to prevent as the support of its order is referable solely to the 1.6-acre tract in question, and to the lease of the Century Refining Company thereon, separate from and independent of the 41.7-acre tract to the north thereof. This is further demonstrated by the fact, as shown by the attached map, that disregarding this strip and treating it as a part of the 41.7-acre tract owned by the Giles heirs, there were already drilled three wells to the north of it and three wells to the south of it staggered at approximately equidistant locations from the common dividing line.

Under the facts and circumstances above stated, the rules announced by this court in Humble Oil & Refining Company v. Railroad Commission, 68 S.W.(2d) 625, approved by the...