Palmer Oil Corp. v. Phillips Petroleum Co.

• Citation: 204 Okla. 543,231 P.2d 997
• Decision Date: 20 March 1951
• Docket Number: 33708,Nos. 33336,s. 33336
• Parties: PALMER OIL CORP. et al. v. PHILLIPS PETROLEUM CO. et al. STERBA et al. v. CORPORATION COMMISSION et al.
• Court: Oklahoma Supreme Court

Page 997

231 P.2d 997

204 Okla. 543

PALMER OIL CORP. et al. v. PHILLIPS PETROLEUM CO. et al.

STERBA et al. v. CORPORATION COMMISSION et al.

Nos. 33336, 33708.

Supreme Court of Oklahoma.

March 20, 1951.

Petitions for Rehearing Denied May 22, 1951.

Applications for Leave to File Second Petition for Rehearing

Denied June 5, 1951.

Syllabus by the Court.

1. The Legislature is itself the judge of the conditions which warrant legislative enactments, and they are only to be set aside when they involve such palpable abuse of power and lack of reasonableness to accomplish a lawful end that they may be said to be arbitrary, capricious, and unreasonable, and hence irreconcilable with the conception of due process of law. Whether the enactment is wise or unwise, whether it is based on sound economic theory, whether it is the best means to achieve the desired result, whether, in short, the legislative discretion within its prescribed limits should be exercised in a particular manner, are ordinarily matters for the judgment of the legislature, and the earnest conflict of serious opinion does not suffice to bring them within the range of judicial cognizance.

2. The police power of the State extends to defining the correlative rights of owners in a common source of oil and gas supply, providing for the management, operation and further development of such common source of supply and distributing the proceeds thereof among those entitled thereto.

3. House Bill 339 of the 1945 Legislature, Tit. 52 O.S.Supp.1947, secs. 286.1 to 286.17, known as the Unitization Act is not violative of secs. 7, 15, 23 or 24 of Art. II, or sec. 1 of Art. IV or secs. 1 or 51 of Art. V, of the Constitution of the State of Oklahoma, nor violative of sec. 10 of Art. I or of the Fifth or Fourteenth Amendments to the Constitution of the United States.

4. The Unitization Act does not involve any unconstitutional delegation of legislative power by the provision which requires the petition of lessees of record of more than fifty percent of the area of the common source of supply in order to give the Commission jurisdiction under the Act.

5. Order No. 20289 of Corporation Commission is not contrary to either the law or the evidence.

Claude Monnet, Coleman Hayes and Mart Brown, all of Oklahoma City, and Mark H. Adams, Charles E. Jones and Wm. I. Robinson, all of Wichita, Kan., for plaintiff in error Palmer Oil Corp.

Hatcher & Bond, of Chickasha, Jack W. Page, of Oklahoma City, for plaintiffs in error Tom Potter et al.

Harry D. Page and Booth Kellough, both of Tulsa, for defendant in error Amerada Petroleum Corp.

Brown, Darrough & Ball, of Oklahoma City, for defendant in error Anderson-Prichard Oil Corp.

Wm. C. Liedtke, Russell G. Lowe, Redmond S. Cole, Cyrus L. Billings, James B. Diggs, Jr., and Charles L. Follansbee, all of Tulsa, for defendant in error Gulf Oil Corp.

Walace Hawkins, of Dallas, Tex., W. R. Wallace, Oklahoma City, Okl., for defendant in error Magnolia Petroleum Co.

Don Anderson, Oklahoma City, for defendants in error Stephens Petroleum Co. and Ray Stephens, Inc.

Don Emery, Oklahoma City, Rayburn L. Foster, R. B. F. Hummer, R. M. Williams, all of Bartlesville, and Harry D. Turner, of Oklahoma City, for defendant in error Phillips Petroleum Co.

George W. Hazlett, Cleveland, Ohio, Villard Martin, Wilbur Heard, Tulsa, R. M. Williams, Chas. B. Ellard, A. B. Tanco, Dallas, Tex., Forrest M. Darrough, J. H. Crocker, M. Darwin Kirk, all of Tulsa, T. Murray Robinson, Oklahoma City, amici curiae.

GIBSON, Justice.

Cause No. 33,336 is an appeal from an Order of the Corporation Commission providing for the unitized management, operation and further development of what is designated as 'West Cement Medrano Unit', located in Caddo County, Oklahoma, made in pursuance of the provisions of 52 O.S.Supp.1945 §§ 286.1 to 286.17. Cause No. 33,708 is an original action for a Writ prohibiting the Corporation Commission from exercising further jurisdiction in the matter of said unitization. Since the question of the issuance of the writ depends upon the issues involved on the appeal the same will be disposed of following determination of the appeal.

Involved on the appeal are two major questions. One, the constitutionality of said sections of the statute which, as a whole, constitute what is known as the Unitization Act, H. B. 339 of the 1945 Oklahoma Legislature. The other, the legality of the order of the Commission if authorized under the Act to effect unitization. These questions will be considered in the order stated.

The nature of the Act and the purposes sought to be accomplished thereby are clearly reflected in the legislative declaration made in the first section thereof, as follows: ' § 286.1. The Legislature finds and determines that it is desirable and necessary, under the circumstances and for the purposes hereinafter set out, to authorize and provide for unitized management, operation and further development of the oil and gas properties to which this Act is applicable, to the end that a greater ultimate recovery of oil and gas may be had therefrom, waste prevented, and the correlative rights of the owners in a fuller and more beneficial enjoyment of the oil and gas rights, protected.'

Plaintiffs in error recognize that the subject-matter of the Act is one within the police power of the State and that the constitutional questions presented are whether the Act constitutes a reasonable exercise thereof.

We will refer to and state or quote the particular provisions of the Act involved on considering the arguments directed thereto.

The plaintiffs in error, though numerous, represent but three classes in interest: lessors, lessees and those having, severally, royalties interest which are in excess of one-eighth of the total production.

On behalf of the lessees it is contended that the Act is violative of Art. II, sections 7, 15, 23 and 24 of the Constitution of the State of Oklahoma, and of Art. I, sec. 10, of and the Fourteenth Amendment to the Constitution of the United States. For the purpose of the presentation, there is no segregation of the contentions as to each of said constitutional provisions for the expressed reason the grounds relied on have common application to all. Two grounds are relied on. One, the Act as a whole is unreasonable. The other, the Act constitutes an unauthorized delegation of legislative power.

On behalf of the lessors it is contended that the Act is violative of all of said constitutional provisions and of sec. 51 of Art. V of the Constitution of the State of Oklahoma. The several violations are referable to definite grounds which have common application and there is no occasion to segregate the contentions as to each. Five grounds are relied on. One, the Act constitutes an unauthorized delegation of legislative power, which ground is the same as lessees' ground number Two and is urged on the same bases. Two, that both in the formation of the unit and in the committee management thereof lessees only are recognized and therefore to the exclusion of the lessor. Three, the Act imposes an unauthorized burden upon the royalty interest in the production. Four, the Act imposes an unauthorized burden upon the leased premises of the lessor. And, fifth, the Act is violative of the obligations of contracts.

The substance of lessees' ground One is that the Act is unreasonable because it does not require as a condition to the establishment of the unit a finding by the Commission that, for the purpose of conservation, the application of Act will be more effective than that of the existing laws. In support thereof attention is called to the fact that under the provisions of the Act the unit may be established in fields where production has been had for nearly twenty years; that unitization, in which gas energy is a prime factor for operation, would be less satisfactory by reason of the expenditure thereof during operations prior to unification and would disturb the multitude of rights that had become established on the basis of the methods being employed under the existing laws. There is then declared: 'It is our earnest contention that a compulsory unitization statute which clearly disrupts the existing law and existing rights can only be justified where the advantages to be gained far offset the losses to be sustained to property or individual rights.'

There are then recited the findings required of the Commission by the Act, and it is stated that thereunder 'the Commission could approve a plan of unitization which definitely could not result in an increased recovery of oil and gas over that being accomplished by present methods of operation under the general conservation law.' It is then declared that, by reason thereof: 'We submit that any compulsory unitization law, competing with the general conservation law whose real purpose is exactly the same, should not be given constitutional sanction under the police power unless it specifically provides that the Commission finds that any plan of unitization approved thereunder will accomplish the conservation of oil and gas with substantially greater results than is being accomplished under the general conservation law still in full force and effect.'

The findings required by the Act appear in section 286.4, as follows: 'If upon the filing of a petition therefor and after notice and hearing, all in the form and manner and in accordance with the procedure and requirements hereinafter provided, the Commission shall find (a) that the unitized management, operation and further development of a common source of supply of oil and gas or portion thereof is reasonably necessary in order to effectively carry on pressure-maintenance or repressuring operations, cycling operations, water flooding operations, or any combination thereof, or any other form of joint effort calculated to substantially increase the ultimate recovery of oil and gas from the common source of...