Marrs v. Railroad Commission
| Decision Date | 05 January 1944 |
| Docket Number | No. 8044.,8044. |
| Citation | 177 S.W.2d 941 |
| Parties | MARRS et al. v. RAILROAD COMMISSION et al. |
| Court | Texas Supreme Court |
Scarborough, Yates & Scarborough and Dallas Scarborough, all of Abilene, and Phillips, Trammell, Estes, Edwards & Orn, of Fort Worth, for petitioner Crier & Ranch Co.
White, Taylor & Chandler and Black, Graves & Stayton, all of Austin, H. L. Stone, of San Angelo, John E. Green, Jr. of Houston, and P. O. Settle, of Fort Worth, for petitioner Gulf Oil Corporation.
Henry H. Brooks, of Austin, Dorsey Hardeman, of San Angelo, Joe G. Montague, Ira Butler, James & Conner, Mark McGee, Cantey, Hanger, McMahon, McKnight & Johnson, and Gillis A. Johnson, all of Fort Worth, for petitioner Marrs & Federal Royalty Co.
Gerald C. Mann, Atty. Gen., and Grover Sellers, James D. Smullen, Lloyd Armstrong, and Ed Roy Simmons, Asst. Attys. Gen., for respondents.
The suit was brought by E. C. Marrs and Federal Royalties Company, Inc., owners of royalty interests in the McElroy Field in Crane and Upton Counties, both as a statutory suit under Article 6049c, Sec. 8, Vernon's Annotated Civil Statutes, to test the validity of the Railroad Commission's proration orders for the months of March, April, May, and June, 1941, as applied to said field, and as a bill in equity to restrain the Commission from restricting production in the field in such a manner as to constitute a taking of plaintiffs' property without due process of law. The Gulf Oil Corporation, the operating lessee of a large portion of the field, which was named as a party defendant, admitted the material allegations of plaintiffs' petition and filed a cross-action against the Commission in which it prayed for substantially the same relief. Other royalty owners, W. T. Crier and the McElroy Ranch Company, intervened and likewise aligned themselves with the plaintiffs. Upon trial without a jury the District Court of Travis County granted the relief prayed for. The Court of Civil Appeals reversed this judgment and sustained the Commission's orders. 161 S.W.2d 1037. All the parties other than the Railroad Commission applied to this Court for a writ of error, and will be hereinafter referred to as petitioners.
The petitioners own practically all the mineral estate in the rich southern section of the McElroy Field, known as the Inside McElroy area. Their suit is predicated on the theory that their production is so restricted by the Commission's proration orders that they are unable to recover their oil before it drains away to the more densely drilled section to the north, known as the Church-Fields area. The principal fact issue involved is whether such drainage is actually taking place. The district court found that it was, and so recited in its judgment.
The McElroy Field is about eleven miles long and two and one-half miles wide, running generally northwest and southeast. Until the proration order of March 5, 1941, it had been treated by the Commission as three separate fields. The northern portion, formerly known as the Church-Fields Field, includes the University Block on the north end, a narrow tract of land running east and west across the field known as The Texas Company strip, and the north four sections of the McElroy Ranch. The southern portion, formerly known as the Gulf-McElroy or Inside McElroy Field, lies almost wholly within the McElroy Ranch. A smaller area to the south, along the western edge of the field, was known as the McClintic Field. See map in opinion of the Court of Civil Appeals, 161 S.W.2d 1039. Although originally developed in these three separate areas, the McElroy Field, as it is now called, is one continuous reservoir, containing altogether an estimated 16,900 productive acres. The oil is produced from a dolomitic limestone formation about 3,000 feet below the surface. This pay formation dips and thins out gradually toward the west, but drops off steeply along its eastern edge, so that the east side is generally thicker and more productive. The whole structure slopes downward toward the north. The pay section was originally about twice as productive in the Inside McElroy area, or south portion of the field, as it was in the Church-Fields area to the north. The limestone is sealed off by impermeable strata from other formations, so that internal gas pressure is the only source of reservoir energy. This pressure was originally 755 pounds per square inch all over the field at a common level of 200 feet below sea level.
In the Church-Fields area the first well was discovered in April, 1926. Because of the competitive conditions occasioned by the diversity of lease ownership, development in that area proceeded very rapidly. Before the end of 1927 some 221 wells had been drilled. All these wells were allowed to produce at full capacity for about four years prior to proration, which became effective in that field about January, 1931. By May, 1941, 332 wells had been drilled in this area on a spacing pattern permitted by the Commission of approximately one well to ten acres, the area eventually being developed to one well to approximately eighteen acres, although some portions were more densely drilled. By May, 1941, of the 332 wells, 202 were drilled in the University Block, 15 on The Texas Company strip, and 115 on the north four sections of the McElroy Ranch. As shown on petitioners' maps, the old Church-Fields area contains 6,000 acres of land, including 4,440 acres in the University Block and The Texas Company strip and 1,560 acres in the north four sections of the McElroy Ranch. To January 1, 1941, these three areas had produced altogether 87,325,851 barrels of oil; about 57,000,000 barrels from the University Block, 10,500,000 barrels from The Texas Company strip, and 20,000,000 barrels from the north four sections of the McElroy Ranch. Of the 67,500,000 barrels produced from the University Block and The Texas Company strip, 49,000,000 were produced before proration and some 18,500,000 since; and of the 20,000,000 barrels produced from the north four sections, 11,000,000 were produced before proration and 9,000,000 since. Calculated by the acre, the Church-Fields area has recovered 14,554 barrels of oil per acre. At the time proration went into effect all of the wells in the University Block and on The Texas Company strip, except two, had ceased to produce through reservoir pressure and had passed into the pumping stage, having utilized and reduced the original reservoir pressure of 755 pounds to an average of about 200 pounds; the lowest pressure being about 65 pounds slightly to the east of the central portion of the University Block, where nineteen leases had been densely drilled and had produced about 36,000,000 barrels of oil, creating the lowest pressure area in the field.
Oil was first discovered in the Inside McElroy area in July, 1926. Since practically the entire field has been operated from the beginning by the Gulf Oil Corporation, the lessee of all the McElroy Ranch properties, including the north four sections located in the Church-Fields area, there was no competition to stimulate such rapid development and dense drilling as took place in the Church-Fields area. Only 27 wells were in production when proration went into effect in that field in the latter part of 1932. To January 1, 1941, the Inside McElroy area had produced 27,210,556 barrels of oil, or 2,864 barrels per acre, of which 15,000,000 barrels were produced before proration. Since proration, the drilling of this area has proceeded on a pattern suggested by the Gulf Oil Corporation and approved by the Commission of one well to 17.8 acres. As of May 1, 1941, the drilling had reached a density of one well to 37 acres in the 6,080 acres of unitized leases, with a total of 146 wells, all flowing, except two at the edge of the field. At the time of the trial and for the past several years the Gulf Oil Corporation has had six strings of tools running, with twenty-four crews engaged in new drilling, spacing the wells so as ultimately to drill the 9,500 acres in this area to one well to 17.8 acres, in accordance with the pattern approved by the Commission. As the result of proration and of this plan of development, only a comparatively small part of the oil originally in place in the Inside McElroy area has been recovered, an estimated 80% of the recoverable oil yet remaining, as compared with 15% in the Church-Fields area, and the original reservoir pressure of 755 pounds has been reduced to an average for the field of approximately 550 pounds.
The McClintic Field was discovered in 1928 or 1929 and has been densely drilled. It contains 1,400 productive acres, and on January 1, 1941, had produced 3,205,795 barrels of oil, or 2,290 barrels per acre. There is no issue of drainage to this area.
While the Commission under its statewide proration order for May, 1941, fixed the total allowable for the entire McElroy Field ...
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