People's Petroleum Producers v. Smith

• Decision Date: 24 October 1932
• Docket Number: 432.,No. 386,408,392-395,386
• Citation: 1 F. Supp. 361
• Parties: PEOPLE'S PETROLEUM PRODUCERS, Inc., v. SMITH et al., and six other cases.
• Court: U.S. District Court — Eastern District of Texas

1 F. Supp. 361

PEOPLE'S PETROLEUM PRODUCERS, Inc., v. SMITH et al., and six other cases.

Nos. 386, 392-395, 408, 432.

District Court, E. D. Texas, Tyler Division.

October 24, 1932.

Byron A. Irwin, of Shreveport, La., Morgan, Culton, Morgan & Britain, of Amarillo, Tex., Saye, Smead & Saye, of Longview, Tex., and T. L. Wynne, of Athens, Tex., for plaintiffs.

Fred Upchurch and Maurice Cheek, Asst. Attys. Gen., and R. E. Hardwicke, of Fort Worth, Tex., for defendants.

Before HUTCHESON, Circuit Judge, and GRUBB and BRYANT, District Judges.

HUTCHESON, Circuit Judge.

At a former hearing of these causes People's Petroleum Producers, Inc., v. Sterling (D. C.) 60 F.(2d) 1041, we denied the temporary injunction. The evidence, however, of the enormous and constantly increasing disproportion between the allowed and the potential production in the East Texas field, of its apportionment equally per well, regardless of capacity; of the powerful and unremitting pressure of the oil industry as a whole to limit the production of crude oil in Texas to the quota fixed by agreement to equal the demand for refined products which the market could absorb, and of the complacent, if not compliant, attitude of the commission toward this pressure and demand, caused us grave misgivings as to the correctness of our conclusion that, upon the record they made, plaintiffs had not shown sufficiently to overcome their prima facies that the orders were unreasonable, drastic, and oppressive as to them. That some other plan of regulated production in the field bringing about reasonable withdrawals of a considerably larger amount upon the basis of potential rather than per well would accomplish the permissible purpose of preventing physical waste without trenching upon the forbidden one of limiting production to market demand. Because of these misgivings, however, we deferred decision on the merits until in the light of a full disclosure of field conditions it could be determined justly in a final way whether the orders complained of were in fact valid conservational orders as claimed by defendants, or invalid and oppressive attempts to limit production as claimed by plaintiffs. People's Petroleum Producers, Inc., v. Sterling (D. C.) 60 F. (2d) 1041.

Thereafter, at a hearing held for the purpose of fixing new allowables for the Texas fields, the commission, over the protest and against the opinion of its advisers, and without any supporting evidence being offered, increased the East Texas allowable from 325,000 to 375,000 barrels per day, offsetting the increase in that field, however, by a reduction of substantially the amount of the increase spread over the other Texas fields. The allowable for East Texas it arbitrarily apportioned as before equally per well among the more than 8,000 producing wells in that field, in entire disregard of the differences as to each well in productive capacity, situation on the structure, thickness, and character as to richness and yield of the underlying sands and proximity to water. Apparently designed to placate protestants in the East Texas field who were claiming that the program of restriction was bearing too hardly on that field, and not hardly enough on other fields, the action pleased no one. Neither the industry, which had been pressing for still further reductions in East Texas, and which vigorously condemned the increase, nor, because of the smallness of the increase, the contesting producers. By amended complaints filed against the orders, plaintiffs, persisting in the claim made on the former hearing that, by fixing a top allowable for the field as a whole, no matter how many wells were drilled, and arbitrarily apportioning it equally on a per well basis, in disregard of the differences in capacity and in field location of the wells, and of the grossly inequitable result of such apportionment, they neither are nor were intended to be conservation orders to prevent physical waste of natural resources, but economic orders to keep the supply of Texas crude oil within the compass of the existing demand for it, again asserted them to be invalid. Exertions of power forbidden by statute to the commission, or, if generally within the authorization, such excessive and unreasonable exercise of the power they purport to execute that, transcending public necessity, they assume the character of a mere arbitrary fiat. People's Petroleum Producers, Inc., v. Sterling, supra.

Defendants joining issue, the causes stood for trial together as one cause, the parties agreeing that each presented substantially the same questions of law and fact, and that the same decree should be entered in each.

Upon the issues thus joined, plaintiffs and defendants offered a mass of testimony, both fact and opinion, as to the nature, character, and extent of the field; of the oil-bearing sands, the edge and bottom water; the gas free and in solution; and whether the oil comes to the wells water driven or gas borne. The reservoir content; its possible and probable yield, and the best methods to obtain the largest yield; the causes of waste, and methods to prevent it, and how these are affected by present and proposed methods of regulation; to field conditions generally and as regards plaintiffs' wells; the relation between plaintiffs' wells and other wells in the field; and the relation which the commission's orders bear to the prevention of waste in, and ultimate recovery from, the field generally and from plaintiffs' wells — were testified to. Factual data as to physical conditions in the East Texas field disclosed by official core records from many wells, and tests made there, were interpreted, supplemented, and theorized upon in the testimony of witnesses who had had practical or theoretical experience, or both, in that field. This testimony, supplementing that produced on the former hearing, presents in a full, complete, and final way the case on the facts for plaintiffs, and for defendants.

We have repeatedly, and without varying, held that the state may, in the interest of the conservation of its natural resources, provide by legislation within constitutional limits for the regulation of the drilling for, the production and the marketing of, oil to prevent waste. That it may constitute the commission statutory agent of the state, and may delegate to it authority to make within the limits of the grant of power just and equitable rules and regulations to effect these ends. We have also held that, in the act of appointment, the Legislature has strictly defined and limited the powers of the commission. MacMillan v. Railroad Commission (D. C.) 51 F.(2d) 400, 404; F. C. Henderson, Inc., v. Railroad Commission (D. C.) 56 F.(2d) 218; Constantin v. Smith (D. C.) 57 F.(2d) 227. In People's Petroleum Producers, Inc., v. Sterling (D. C.) 60 F.(2d) 1041, we carefully examined the statutory provisions against waste contained in the present statutes (Vernon's Ann. Civ. St. Tex. art. 6014, 6049c), which are set out in a note to that opinion, and found nothing in them which contemplated, required, or permitted either unreasonable or unjust restrictions upon production. We found, upon the contrary, that, while allowing the commission to make orders prorating production from a pool if necessary to prevent waste, they in terms required the apportionment to be made among the wells as the facts justly and equitably required. We accordingly found the statutes valid against attack. No case has been called to our attention, and we have found none, which requires modification of these views. We again find the statutes valid. It remains only to inquire whether, tested by the principles announced in those cases, and particularly in the last case referred to, a case is made out here entitling plaintiffs to relief. Whether the orders transcend the powers granted to the commission, because, contrary to the statutory prohibition, they are designed and effective to prevent economic waste by limiting the production of oil to equal the existing market demand, or, though designed to prevent physical waste, they operate unjustly and inequitably, because discriminatory, or excessively, because beyond what the public necessity requires.

The facts are without conflict; a brief summary of them will suffice. The conflicts arise entirely from the contrary theories advanced by the experts on each side in support of their respective contentions as to the effect on physical waste of present and proposed methods of controlled production. On...