Mobil Exploration & Producing U.S. Inc. v. State Corp. Com'n of State of Kan., 72,895

• Decision Date: 15 December 1995
• Docket Number: No. 72,895,72,895
• Citation: 908 P.2d 1276,258 Kan. 796
• Parties: , 134 Oil & Gas Rep. 458 MOBIL EXPLORATION & PRODUCING U.S. INC., et al., Appellants, v. The STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Susan M. Seltsam, Chair; and F.S. Jack Alexander and Rachel C. Lipman, Commissioners, and Their Respective Successors in Office as Constituent Members of the State Corporation Commission of the State of Kansas, Appellees.
• Court: Kansas Supreme Court

Page 1276

908 P.2d 1276

258 Kan. 796, 134 Oil & Gas Rep. 458

MOBIL EXPLORATION & PRODUCING U.S. INC., et al., Appellants, v. The STATE CORPORATION COMMISSION OF THE STATE OF KANSAS Susan M. Seltsam, Chair; and F.S. Jack Alexander and Rachel C. Lipman, Commissioners, and Their Respective Successors in Office as Constituent Members of the State Corporation Commission of the State of Kansas, Appellees.

No. 72,895.

Supreme Court of Kansas.

Dec. 15, 1995.

Syllabus by the Court

1. The Kansas Corporation Commission (KCC) is vested with three responsibilities under the provisions of K.S.A. 55-703: (1) It must prevent waste of the natural resource, (2) it must allow sufficient production to meet the market demand if such can be done without waste, and (3) it must protect correlative rights.

2. If the market demand cannot be supplied without waste, or correlative rights cannot be protected without waste or without unduly restricting production needed for the market demand, one of the three--waste, market demand, or correlative rights--must suffer. The dominant purpose of K.S.A. 55-701 et seq. is to prevent waste.

3. The KCC has authority over the Hugoton Gas Field in Kansas to prevent waste even though the exercise of such authority may not be necessary to protect correlative rights.

4. The scope of appellate review of an administrative agency's order is to determine whether the district court reviewed the order in accordance with its statutory responsibility. The appellate court exercises the same review of the agency's action as does the district court and must accept as true the evidence and all inferences to be drawn therefrom which support or tend to support the findings of the agency. It is to disregard any conflicting evidence or other inferences which might be drawn therefrom.

5. When a court is reviewing a decision of the KCC for substantial evidence, the court must observe several limitations. Neither the district court nor this court may substitute its judgment for that of the administrative agency. As long as the record contains substantial competent evidence supporting the agency decision, the decision is reasonable and must be upheld.

6. The KCC is vested with wide discretion, and its findings have a presumption of validity on review. A reviewing court may not set aside a KCC order merely because it would have reached a different conclusion if it had been the trier of fact. Only in those cases where the evidence shows that the KCC's determination is so wide of the mark as to be outside the realm of fair debate may the factual findings be set aside.

7. An administrative body empowered to investigate facts, weigh evidence, draw conclusions as a basis for official actions, and exercise discretion of a judicial nature is acting in a quasi-judicial capacity.

8. The full rights of due process present in a court of law do not automatically attach to a quasi-judicial hearing. However 9. Where the record demonstrates that the evidence upon which cross-examination was restricted was not considered in the KCC's final decision and the final KCC action was based only upon evidence which had been subject to cross-examination, a denial of due process has not been established.

the right to the cross-examination of witnesses in quasi-judicial or adjudicatory proceedings is one of fundamental importance and generally, if not universally, is recognized as an important requirement of due process.

10. While K.S.A. 55-703(a) provides a list of factors which shall be considered by the KCC in determining each gas well's productive capacity, the KCC is vested with wide authority under K.S.A. 55-704 to set rules and standards in order to determine the productive capacity of wells in the field. The factors set forth in K.S.A. 55-703(a) are not exclusive.

11. K.S.A. 55-704 confers upon the KCC broad powers to set standards for determining the productive capacity of each gas well in the field in order to accomplish the three purposes of preventing waste, protecting correlative rights, and satisfying market demand. The actual ability of each well to produce is a factor that may be considered, and a limitation of a well's allowable based upon the demonstrated capacity of the well to produce is within the statutory authorization of the Natural Gas Conservation Act and does not violate K.S.A. 55-703(a) simply because it considers factors extrinsic to the common source of supply.

12. K.S.A. 55-706(a) provides that the KCC may institute proceedings upon petition of any interested party, or by petition of the attorney general on behalf of the State, or on its own motion. These proceedings are to be commenced in the manner provided by K.S.A. 55-605 and amendments thereto. K.S.A. 55-605 requires the KCC to give reasonable notice to interested parties. Notice should contain such information as will briefly and adequately disclose the matter to be considered or the relief sought.

13. K.S.A. 77-521(b) allows the KCC discretion to grant a petition for intervention upon a determination that the intervention sought is in the interests of justice and will not impair the orderly and prompt conduct of the proceedings.

14. In a proceeding before the KCC, the ordered amendments to the Basic Proration Order governing the Hugoton Gas Field in Kansas regarding (1) a change in the acreage factor for a lease with an infill well, (2) a limitation of a well's allowable to its demonstrated capacity to produce, and (3) an expansion of the time to produce existing underage are examined and found to be legally sufficient and supported by substantial competent evidence.

Jennifer Gille Bacon, of Shughart, Thomson & Kilroy, P.C., of Kansas City, Missouri, argued the cause, and Thomas A. Sheehan, of the same firm, and Evan J. Olson, and Marc P. Clements, of Hershberger, Patterson, Jones & Roth, L.C., of Wichita, and Daniel P. LeFort, of Mobil Exploration & Producing U.S. Inc., of Dallas, Texas, were with her on the briefs for Mobil Exploration & Producing U.S. Inc.

Steven D. Gough, of Kahrs, Nelson, Fanning, Hite & Kellogg, of Wichita, argued the cause, and Gary L. Paulson and Eric Nitcher, of Amoco Production Company, of Denver, Colorado, were with him on the briefs for Amoco Production Company.

Stanford J. Smith, Jr., of Curfman, Harris, Rose, Weltz, Metzger, & Smith, of Wichita, argued the cause, and John C. Lovett, associate general counsel, OXY USA Inc., of Tulsa, Oklahoma, was with him on the briefs for OXY USA Inc.

Charles J. Woodin, of Foulston & Siefkin, L.L.P., of Wichita, argued the cause and was on the briefs for Vastar Resources, Inc.

William J. Wix, Assistant General Counsel, argued the cause, and John McCannon, Assistant General Counsel, and Brian J. Moline Spencer L. Depew, of Depew and Gillen, L.L.C., of Wichita, argued the cause, and James J. Ward, Jr., of Anadarko Petroleum Corporation, of Houston, Texas, was with him on the brief for appellee Anadarko Petroleum Corporation.

Special Counsel, were with him on the brief for appellee Kansas Corporation Commission.

James G. Flaherty, of Anderson, Byrd, Richeson & Flaherty, of Ottawa, argued the cause, and G. Michael Prescott III, Associate General Counsel, and Thomas H. Hawkins, Senior Counsel, of Mesa Operating Company, of Irving, Texas, were with him on the brief for intervenor Mesa Operating Company.

John Cary, Senior Counsel, The Williams Companies, Inc., of Tulsa, Oklahoma, and Teresa J. James, of Adams, Jones, Robinson and Malone, Chartered, of Wichita, were on the brief for appellee Williams Natural Gas Company.

Timothy E. McKee, of Triplett, Woolf & Garretson, of Wichita, was on the brief for appellee Colorado Interstate Gas Company.

Joseph F. Furay, of KN Energy, Inc., of Lakewood, Colorado, and Jeff Kennedy and Ann T. Rider, of Martin, Pringle, Oliver, Wallace & Swartz, L.L.P., of Wichita, were on the brief for appellee KN Energy, Inc.

Jane Alseth, of Northern Natural Gas Company, of Omaha, Nebraska, and Jeff Kennedy and Ann T. Rider, of Martin, Pringle, Oliver, Wallace & Swartz L.L.P., of Wichita, were on the brief for appellee Northern Natural Gas Company.

Jack Glaves and Curtis M. Irby, of Wichita, were on the brief for appellee Panhandle Eastern Pipe Line Company.

DAVIS, Justice:

This is a consolidated appeal from the district court's opinion affirming the Kansas Corporation Commission's (KCC) amendments to the Basic Proration Order (BPO) controlling the Hugoton Gas Field in Kansas. The parties, procedural development, and issues raised on appeal are set forth below. Our standard of review is governed by K.S.A. 77-621 of the Act for Judicial Review and Civil Enforcement of Agency Actions.

BRIEF HISTORY AND BACKGROUND

The Hugoton Natural Gas Field was discovered in the 1920's. The first gas well was drilled in 1927, four miles southwest of Hugoton, in Stevens County. At present, the gas field is 160 miles long and varies from 40 to 72 miles in width. There are 5,854 wells that cover portions of 11 counties in the southwest corner of Kansas. The field extends across the Oklahoma panhandle and into portions of several counties in northern Texas. Existing wells have drained approximately 20 trillion cubic feet (Tcf) of the 30 Tcf of recoverable reserves in the reservoir. Production from the field in the year 1993 was approximately 400 billion cubic feet (Bcf) of gas. See Lipman, Hugoton Gas Field: The Ongoing Battle Over Allowables, Underage, and Infill Wells, 33 Washburn L.J. 852 (1994).

The gas in the Hugoton Field comes from a common pool. In the absence of any statutory regulation, the common-law rule of capture applies to a common pool. At common law, the owner of a tract of land acquired title to the oil and gas which the owner produced from wells drilled thereon even though it could have been proved that part of such oil or gas migrated from adjoining lands. The rule promotes excessive drilling and production, resulting in economic waste and...