Mobil Oil Corp. v. State Corp. Commission, 50551

• Decision Date: 05 April 1980
• Docket Number: No. 50551,50551
• Citation: 608 P.2d 1325,227 Kan. 594
• Parties: MOBIL OIL CORPORATION, Appellant, v. The STATE CORPORATION COMMISSION of the State of Kansas; G. T. Van Bebber, Chairman; William G. Gray and R. C. Loux, Commissioners, and their respective successors in office, as Members of the State Corporation Commission of the State of Kansas, and Alfred M. Brecheisen, Clarence W. Brecheisen Estate, Jessie Marie Fagan, Charles Paul Brecheisen, Henry Raymond Brecheisen, James Marvin Brecheisen, Fred Hinch, Dorothy E. Hinch, George L. Hinch, Helen J. Hinch, Charles F. Hinch and Marsha J. Hinch, Intervenors, Appellees.
• Court: Kansas Supreme Court

Page 1325

608 P.2d 1325

227 Kan. 594

MOBIL OIL CORPORATION, Appellant, v. The STATE CORPORATION COMMISSION of the State of Kansas; G T. Van Bebber, Chairman; William G. Gray and R. C. Loux Commissioners, and their respective successors in office, as Members of the State Corporation Commission of the State of Kansas and Alfred M. Brecheisen, Clarence W. Brecheisen Estate, Jessie Marie Fagan, Charles Paul Brecheisen, Henry Raymond Brecheisen, James Marvin Brecheisen, Fred Hinch, Dorothy E Hinch, George L. Hinch, Helen J. Hinch, Charles F. Hinch and Marsha J. Hinch, Intervenors, Appellees.

No. 50551.

Supreme Court of Kansas.

April 5, 1980.

Syllabus by the Court

In an action wherein (1) a natural gas lessee filed an application with the State Corporation Commission for an allowable and a noncontiguous acreage attribution for a well in the Panoma Council Grove Gas Field; (2) included within the proposed unit was a fractional 4/7 undivided mineral interest whose owners had consented to the unit; (3) the owners of the excluded 3/7 undivided mineral interest objected to the application; (4) the Commission granted the application only so far as it pertained to tracts not involving undivided interests and denied jurisdiction to consider fractional undivided interests for inclusion in the unit; and (5) on appeal, the district court affirmed the Commission order, the record is examined and it is held : The district court erred in affirming the order of the Commission, all as is more fully set forth in the opinion.

Richard Jones, of Hershberger, Patterson, Jones & Roth, Wichita, argued the cause, and Landon T. Carlson, of Mobil Oil Corporation, Denver, Colo. and Paul A. Wolf, of Brollier, Wolf & Johnson, Hugoton, were with him on the brief for appellant.

LuAnn C. Dixon, Asst. General Counsel for the State Corporation Commission, Junction City, argued the cause and was on the brief for appellee, State Corporation Commission.

Dale M. Stucky, of Fleeson, Gooing, Coulson & Kitch, Wichita, argued the cause, and Mark E. Singer, Wichita, was with him on the brief for appellees, Alfred M. Brecheisen, et al.

McFARLAND, Justice:

Mobil Oil Corporation filed an application with the State Corporation Commission for the assignment of an allowable at the appropriate time and for a noncontiguous acreage attribution exception for a well to be drilled in the Panoma Council Grove Gas Field in Stevens County, Kansas. The proposed unit consisted of three 160-acre tracts and a 4/7 undivided interest in a fourth 160-acre tract. The State Corporation Commission granted the application as to the first three tracts, but denied the application as to the fourth tract on the ground The question before us is one of first impression and is whether or not the State Corporation Commission (hereinafter referred to as "Commission") has jurisdiction to consider a fractional undivided mineral interest for inclusion in a noncontiguous acreage exception for a gas well. The Commission concluded that it lacked jurisdiction herein by virtue of the fact that inclusion of the 4/7 undivided interest in the unit could have the possible effect of forcing unitization on the owners of the remaining 3/7 undivided interest. All parties agree that the Production and Conservation of Natural Gas Act (K.S.A. 55-701 et seq.) confers no powers to the Commission by which it could compel unitization.

of lack of jurisdiction. Mobil appealed the order to the district court of Stevens County. The district court upheld the State Corporation Commission and Mobil brings this appeal. The intervenors in this action are the owners of the undivided 3/7 mineral interest in the excluded tract.

Mobil leased the entire 160-acre tract in dispute in 1929. The lease did not contain a unitization clause. Mobil sought to form a production unit of the four tracts in the Panoma Council Grove Field. The owners of the mineral rights in three tracts consented, as did the owners of the 4/7 undivided mineral interest in the fourth tract. The owners of the 3/7 undivided interest in the fourth tract did not consent. Therefore, the application filed by Mobil with the Commission was for a proposed unit of 571 acres (160 k 160 k 160 k 91). The proposed unit was to be open-ended in order that the remaining 69 acres could join at a later time if the owners desired.

In order to understand the rationale of the Commission, it is necessary to include herein a major portion of its order of May 19, 1977, as follows:

ORDER OF THE COMMISSION

"1. K.S.A. 55-701 prohibits the production of natural gas in the State of Kansas when such production may only be accomplished in a manner or under a condition or for such purposes which may constitute waste. K.S.A. 55-703 permits the State Corporation Commission to exercise its jurisdiction whenever it determines that the orderly development of, and production of gas from, any common source of supply requires such exercise. In addition, the Commission may promulgate production regulations if the available production of natural gas from a common source of supply is in excess of the market demand for gas from that supply.

"2. In its Revised Basic Proration Order for the Panoma Council Grove Gas Pool, Docket No. 60,024-C (C-7058), the Commission concluded that one common source of supply existed in the Council Grove Formation of the lower Permian system. This is the producing formation which is the subject of the present application.

"3. K.A.R. 82-2-207 in the Commission's General Rules and Regulations for the Conservation of Crude Oil and Natural Gas sets forth those items which are to be included in an application for an allowable to a gas well in a prorated pool. One such item is the exact location of the well and acreage which is to be attributed to the well.

"4. The Applicant has filed an application with the Commission requesting that an allowable be assigned to its G. W. Shell Unit No. 1 Well in the Panoma Council Grove Gas Field. The Applicant has further requested relief from the contiguous acreage attribution requirements contained in the Revised Basic Proration Order for the Field. . . .

"7. Applicant's G. W. Shell Unit No. 1 Well is to be located approximately 1321 feet from the north line and 1320 feet from the east line of Section 29, Township 34 South, Range 38 West, Stevens County, Kansas.

"8. The Applicant seeks to attribute the following described acreage to its G. W. Shell No. 1 Well:

Northeast Quarter (NE/4) of Section 29; an undivided 4/7 interest in the Northeast Quarter (NE/4) of Section 31; and Southwest Quarter (SW/4) of Section 32 "9. The acreage described in Finding (8) contains 571 acres, more or less. The leases which Applicant holds covering Sections 32, 31 and 6 in the acreage sought to be attributed to the Shell Well do not contain the right of unitizing those leases with others for the purpose of forming a production unit. A unitization agreement allowing the acreage described in Finding (8) to be formed as a gas producing unit has been agreed to by all royalty owners therein except for the Northeast Quarter (NE/4) of Section 31, Township 34 South, Range 38 West, Stevens County, Kansas. The Applicant has obtained the approval of the unitization agreement from those who own an undivided interest in 4/7 of the royalties from production on that particular quarter section. The 3/7 royalty interest owners in that quarter section who have not consented to the unitization agreement with the Applicant appeared at the public hearing in this matter in order to make their objection to the application known. These 3/7 royalty owners further contend that the Commission lacks the authority to compel the unitization of noncontiguous acreage for purposes of attributing land to a gas well where there has been no voluntary agreement to such unitization by the royalty owners.

Township 34 South, Range 38 West; and the Southeast Quarter (SE/4) of Section 6, Township 35 South, Range 38 West, all in Stevens County, Kansas.

"10. The Commission is able to regulate only in a manner prescribed by this state's legislature. The statutory directives in Article 7 of the Kansas Statutes Annotated are primarily aimed at preventing waste and protecting the correlative rights of those with interests in the production of natural gas in the state. At no point in the gas conservation statutes is the Commission able to require the compulsory formation of a production unit without the consent of those with interests in the royalties. Even though the formation of a production unit of separate tracts in the Panoma Council Grove Field may be desirable for the prevention of waste and the protection of correlative rights, the authority to require it may not be implied from the gas conservation statutes. As a result, the Commission is without jurisdiction to approve the attribution of an undivided 4/7 interest of the Northeast Quarter (NE/4) of Section 31, to the G. W. Shell No. 1 Well.

"It is clear that the Applicant would not be able to produce gas from only 4/7 of that acreage. Rather, the Applicant would be taking gas from the entire quarter section. Thus, attributing the undivided 4/7 interest would either have an effect similar to a partitioning of the interests in this property, or violate the rights of those with the remaining undivided 3/7 interests in the quarter section, and thus possibly compel them to join in the unit. The Commission is unable to bring about either of these results.

"11. There are producing gas wells into the Hugoton pay zones in each of the quarter sections listed in Finding (8), with the exception of the Northeast Quarter of Section 29. A Hugoton well in the NE/4 of Section 31 has that 160 acres attributed thereto, one in the Southeast Quarter of Section 6 has attributed to it that 160 acres, and the Hugoton well in the Southwest Quarter (SW/4) of Section 32 has 320 attributable acres. Therefore, the G. W. Shell No. 1 Well will...