Pan Am. Petroleum Corp. v. Wyoming Oil and Gas Conservation Commission, 3693

• Decision Date: 07 November 1968
• Docket Number: No. 3693,3693
• Citation: 446 P.2d 550
• Parties: PAN AMERICAN PETROLEUM CORPORATION, a corporation, Appellant (Plaintiff below), v. WYOMING OIL AND GAS CONSERVATION COMMISSION, James L. Carleton, Jr., as State Oil and Gas Supervisor, and Marathon Oil Company, a corporation, Appellees(Defendants below).
• Court: Wyoming Supreme Court

Page 550

446 P.2d 550

PAN AMERICAN PETROLEUM CORPORATION, a corporation, Appellant (Plaintiff below), v. WYOMING OIL AND GAS CONSERVATION COMMISSION, James L. Carleton, Jr., as State Oil and Gas Supervisor, and Marathon Oil Company, a corporation, Appellees(Defendants below).

No. 3693.

Supreme Court of Wyoming.

Nov. 7, 1968.

A. G. McClintock of McClintock, Mai & Urbigkit, Cheyenne, Oscar E. Swan, Jr., Denver, Colo., for appellant.

James E. Barrett, Atty. Gen., Cheyenne, Morris G. Gray, Robert H. Anderson, Casper, for appellees.

Before HARNSBERGER, C. J., and GRAY, McINTYRE and PARKER, JJ.

GRAY, Justice.

This is an appeal from a judgment of the district court affirming an order entered by the Wyoming Oil and Gas Conservation Commission denying an application by Pan American Petroleum Corporation for a permit to drill an oil well in the northeast corner of an 80-acre tract-identified in the record as Meeteetse 15-owned by it is Grass Creek Field, Hot Springs County, Wyoming.

The circumstances underlying this controversy are not in dispute. The record discloses that oil was discovered in the Grass Creek Field in the year 1914. Development over the years established the confines and extent of the 'pool' or reservoir. Subsequent to the time of discovery the field was developed through the drilling of wells by owners of interests therein without regard to any fixed spacing pattern, and at the time the Oil and Gas Conservation Act was enacted in the year 1951 (Ch. 94 S.L. of Wyoming, 1951) substantial development of the field had taken place.

Perusal of the Act in question discloses that initially its design and purpose was to prevent 'waste' in the production of oil and gas and one of the means selected for accomplishment of that purpose was the granting of authority to the Oil and Gas Conservation Commission to establish, after hearing, 'drilling units of specified and approximately uniform shape covering any pool.' Section 3(a), Ch. 94, S.L. of Wyoming, 1951. Provision was also made for exceptions to prescribed 'drilling units' where enforcement was shown to be 'inequitable or unreasonable,' and while the section has been amended from time to time over the years the authority lodged with the commission in this respect remained substantialy unchanged until 1967, when the legislature for the first time made special provision for the protection of 'correlative rights' in the exercise of the power. Section 30-221(a), W.S.1957 (Comp.1967). Subsection (c) also provides that the order establishing drilling units may be 'for a pool or part thereof' and § 30-216(c) defines a 'pool' as an 'underground reservoir containing a common accumulation of oil or gas, or both.' Notwithstanding the power of the commission so to do since early 1951, it has not of its own motion or otherwise undertaken to prescribe by special order the size of 'drilling units' for the Grass Creek Field or any part thereof.

It did, however, on December 14, 1965, after public hearing and apparently in reliance upon its general powers concerning waste, adopt Rule 302 which it asserts constitutes a statewide spacing order for the location of oil and gas well on any given 40-acre tract. The rule reads as follows:

'In the absence of special orders of the Commission establishing drilling units or authorizing different well density or location patterns for particular pools or parts thereof, each oil and gas well shall be located in the center of a forty (40) acre governmental quarter quarter section or lot or tract or combination of lots or tracts substantially equivalent thereto as shown by the most recent governmental survey, with a tolerance of 200 feet in any direction from the center location; provided, that no oil or gas well shall be drilled less than 920 feet from any other well drilling to or capable of producing oil or gas from the same pool, and no oil or gas well shall be completed in a known pool unless it is located more than 920 feet from any other well completed in and capable of producing oil or gas from the same pool.'

Rule 303, adopted at the same time, makes provision for granting exceptions to Rule 302.

Subsequent to the effective date of the foregoing rules, Pan American, on october 24, 1966, made application to drill an exception well in the northeast corner of its tract, claiming that such a well would recover oil on that portion of the tract which could not be recovered by existing wells. The tract in question lies in the northwesterly end of the field and is joined on the north and on the east by producing properties under lease to Marathon Oil Company. Marathon resisted the application of Pan American and, after hearing, the commission denied the application on the basis that Pan American's existing wells would adequately drain the remaining reserves in the tract. In other words, the commission determined that an additional well was not necessary to prevent waste. No appeal was taken from the commission's order.

Following this, however, Pan American, on December 5, 1966, filed an application with the commission's supervisor for a permit to drill a well at approximately the same location which, of course, was also in conflict with Rule 302. It is admitted the supervisor denied the application for that reason and on March 16, 1967, which incidentally was subsequent to the adoption by the legislature of the provision pertaining to correlative rights above mentioned, Pan American filed an application with the commission seeking, among other things, relief from the action taken by the supervisor. By amendment it was alleged that the drilling of such well was not contrary to law or any rule or order of the commission establishing drilling units or spacing in the field. In the alternative, it was stated that Rule 302, insofar as it might be considered as regulating spacing in the field, was arbitrary and unreasonable and should not be applied or, as a further alternative, that if the rule was considered valid and applicable then the permit should issue as an exception for the reason that it was necessary to protect Pan American's correlative rights.

When the matter was set for hearing before the commission both Pan American and Marathon appeared and presented argument on the validity of Rule 302 as applied to the circumstances of the proceeding. Both parties introduced evidence on the ultimate factual question of whether or not the relief sought by Pan American was necessary for protection of its correlative rights. Thereafter the commission entered its order denying the application. In support of its order the commission, under a separate heading entitled 'FINDINGS,' stated among other things that Rule 302 was a valid regulation; that the evidence did not demonstrate present waste in the field; that the evidence was not sufficiently definite and certain to permit the commission intelligently to enter an order for protection of correlative rights in terms of allocation of production of the paries' properties on a reasonable basis; and in so-called finding number seven stated:

'That the evidence submitted unto the Commission does not, without undue speculation, establish sufficient cause for the granting of an exception to Rule 302 unto applicant to drill a well upon the Meeteetse No. 15 Tract for the protection of applicant's correlative rights.'

In its petition for review of the commission's decision by the district court, Pan American reasserted its contention that Rule 302 was invalid insofar as it purported to establish drilling or spacing units in any substantially developed field, and particularly the Grass Creek Field; charged that such rule was adopted without notice or hearing that such field would be affected thereby; that § 30-221, W.S.1957 (Comp.1967), provides that the commission can establish drilling or spacing units for such fields only after notice and hearing; that if the rule be otherwise construed its adoption was outside the authority vested in the commission by said statute; alternatively that if the said section is so construed it is unconstitutional in that it deprives persons so affected of property without due process of law; that the decision of the commission denying Pan American's application will deprive it, because of drainage, the right to produce oil presently underlying its tract; and that the order of the commission is contrary to law, is arbitrary, and is not supported by substantial evidence.

Marathon and the commission separately answered Pan American's petition and, aside from allegations of certain affirmative defenses, controverted the issues raised by Pan American. The commission did, however, admit that Pan American's application was denied for the reason that the proposed location of the well was in violation of Rule 302 and further upon reliance of its order in the October 1966 proceeding.

The trial court in its judgment affirming the order of the commission determined that the commission did not act without or in excess of its powers; that such order was in conformity with law; that the findings of the commission were supported by substantial evidence; that said decision was neither arbitrary, capricious nor characterized by abuse of discretion; and that Rule 302 was valid and binding and applicable to the circumstances herein.

In a large measure the errors advanced here by Pan American against the trial court's judgment are the same as those advanced against the order of the commission in the petition for review. Concerning these claimed errors the arguments and able briefs of the parties have been extensively devoted to Pan American's claim concerning the validity of Rule 302 and the related constitutional question arising under § 30-221, W.S.1957 (Comp.,1967). We are, of course, award of counsel's desires to have these questions answered. Notwithstanding, we think those matters must be deferred for the reason that we find it necessary to return this proceeding to the...