Peppers Ref. Co. v. Corp.

• Decision Date: 23 April 1947
• Docket Number: Case Number: 32543
• Citation: 1947 OK 128,179 P.2d 899,198 Okla. 451
• Parties: PEPPERS REF. CO. v. CORPORATION COMM'N
• Court: Oklahoma Supreme Court

1947 OK 128

179 P.2d 899

198 Okla. 451

PEPPERS REF. CO. v. CORPORATION COMM'N

Case Number: 32543

Supreme Court of Oklahoma

Decided: April 23, 1947

Syllabus

¶0 1. OIL AND GAS - Authority of Corporation Commission to prevent waste - Factors to be considered in determining "reasonable market demand for crude oil."

At a hearing to determine the reasonable market demand for crude oil, the Corporation Commission may consider such factors as the reasonable consumptive demand for such product and the amount of crude oil and gasoline currently in storage, under its broad authority and power to prevent waste.

2. CORPORATION COMMISSION - Orders appealed to Supreme Court affirmed if sustained by law and substantial evidence.

Under the authority of article 9, sec. 20, Constitution of Oklahoma, as amended, an order of the Corporation Commission on appeal to this court will be affirmed if sustained by the law and substantial evidence.

3. OIL AND GAS - Prevention of waste - Rule used by Corporation Commission departing from percentage production.

Any rule or formula used by the Corporation Commission departing from percentage production must bear a reasonable relation either to the prevention of waste or the protection of correlative rights.

4. SAME - Orders must not unreasonably discriminate in favor of one common source of supply as against another.

Under the provisions of 52 O. S. 1941 § 274, an order of the Corporation Commission must not unreasonably discriminate in favor of one common source of supply as against another.

Appeal from the Corporation Commission of the State of Oklahoma.

Peppers Refining Company and Stephen Petroleum Company appeal from order establishing daily oil allowables for March, 1946. Sustained in part and held erroneous in part.

Robinson, Shipp & Robertson, of Oklahoma City, for plaintiff in error Peppers Refining Company.

J.B. Dudley, of Oklahoma City, for plaintiff in error Stephens Petroleum Company.

Floyd Green and Charles F. White, both of Oklahoma City, for defendant in error Corporation Commission of Oklahoma.

BAYLESS, J.

¶1 Peppers Refining Company and Stephens Petroleum Company have appealed from an order of the Corporation Commission entered in February, 1946, establishing the daily oil allowables for the State of Oklahoma for the month of March, 1946. Since passage of the 1933 proration act the commission has held monthly hearings to fix the amount of production for the entire state from each of the various pools for the succeeding month. In addition to giving the statutory notice, the conservation officer, on February 7, 1946, advised all producers and purchasers by letter that in view of the rapid increase in crude storage and gasoline stocks, a cutback in the allowable production would be advisable. At that time there were approximately 50 purchasers who bought crude oil in the state, but only about 20 were present at the hearing. Thirteen of these purchasers testified that they would purchase as much oil in March as they had in February. Nine letters and telegrams urging the commission to follow the estimate of the Bureau of Mines were introduced in evidence. One of the letters stated:

". . . It is imperative, in order to prevent waste, that production be limited to a consumptive market demand. Nominations of purchasers are not indicative of consumptive market demand."

¶2 The conservation officer introduced in evidence, without objection, two telegrams from the Bureau of Mines, the first dated February 19, 1946, and the second dated February 25, 1946. The first telegram stated, ". . . forecast of demand for Oklahoma crude oil in March is three hundred sixty thousand barrels daily." The second telegram stated, ". . . Oklahoma crude stocks were 34,750,000 barrels on February 9 compared with 32,143,000 barrels on September 1, 1945. Total national crude stocks were 223,303,000 barrels on February 9 and 215,169,000 barrels on September 1. . . ." Walter T. Pound, conservation officer, whose qualifications as an expert on oil production were admitted, testified that there had been an abnormal increase in the stocks of crude oil and gasoline; that crude oil stocks throughout the nation had increased approximately 8,000,000 barrels since September 1, 1945; that crude stocks of Oklahoma origin have increased about 2,500,000 barrels during that period; that gasoline stocks have increased from 78,000,000 to over 105,000,000, which is the highest they have ever been except during the war when the army acquired a large stock-pile of gasoline; that according to American Petroleum Institute figures the gasoline in storage is increasing at the rate of over 1,000,000 barrels a week, most of which increase has been during the past two months. He recommended that 164,525 barrels of oil be produced daily from the allocated or prorated pools and 195,000 barrels daily from the unallocated areas, making a total of 359,525 barrels daily production for the entire state, which is close to the Bureau of Mines' estimate of 360,000 barrels. Pound testified that if production was not reduced, he foresaw in the immediate future a complete shutdown of production as was once necessary in the state with all of the attendant ills that go with it and the destruction of many stripper wells which would result in waste of oil and gas resources. For the Oklahoma City Wilcox pool he recommended a 20 per cent cutback for the month of March, and for the Cement West-Medrano pool he recommended that the daily allowable per well be reduced from 300 to 100 barrels. The commission made a finding that the daily allowable of oil in Oklahoma for the month of March should be 359,525 barrels, which was a reduction of 28,475 barrels below the daily production allowable for the month of February. It also reduced the daily allowable for the Oklahoma City Wilcox pool and the Cement West-Medrano pool in the amount recommended by Mr. Pound.

¶3 Appellants contend, first, that the order reducing the daily allowable for the state is based entirely upon the telegram from the Bureau of Mines and that such evidence will not support an order of the commission determining the market demand; second, that "reasonable market demand" means the amount of oil which the purchasers are willing to buy from the producers in this state and not an amount determined by the Bureau of Mines or what the commission thinks should be reasonable for them to purchase; and third, that the commission arbitrarily reduced the allowables of the Oklahoma City Wilcox pool and the Cement West-Medrano pool without the use of any equitable formula and that there was no evidence taken at the hearing to sustain such reductions.

¶4 Although the commission makes monthly revisions of its proration orders and the questions regarding the particular orders involved herein are now moot, yet we think the rule announced in Van De Vegt v. Board of Commissioners of Larimer County, 98 Colo. 161, 55 P.2d 703, controls herein. In that case the court held:

". . . A case is not moot where interests of a public character are asserted under conditions that may be immediately repeated, merely because the time for a particular order has expired. Southern Pac. Terminal Co. v. Interstate Commerce Commission, 219 U.S. 498, 31 S.Ct. 279, 55 L.Ed. 310. The problem here is of prime public concern and a continuing one. We are not warranted in relegating the parties to the condition which would result from withholding determination."

See, also, Dove v. Oglesby, 114 Okla. 144, 244 P. 798.

¶5 The following statutory provisions under Title 52 O. S. 1941 are here applicable.

¶6 Section 85 defines waste to include, in addition to its ordinary meaning, economic, underground, or surface waste, and waste incident to the production of oil in excess of transportation or marketing facilities or reasonable market demands; prohibits production under conditions constituting waste; and empowers the Corporation Commission to make rules, regulations, and orders for the prevention of such waste.

¶7 Whenever full production from any common source can only be obtained under conditions constituting waste, one having the right to produce oil from such source may take only such proportion of all that may be produced therefrom without waste as the production of his wells bears to the total. (Sec. 87.)

¶8 The commission is authorized to regulate the taking of oil so as to prevent the inequitable or unfair taking from a common source of supply by any person and to prevent unreasonable discrimination in favor of one source as against another. (Sec. 274.)

¶9 Gauges are to be taken from time to time for the purpose of determining total production of the common source and the amount of oil which the operators of the wells are entitled to take. (Sec. 89.)

¶10 In a proceeding to ascertain the reasonable market demand or the transportation or marketing facilities for oil that may be produced from a common source of supply during a specific period of time, the commission may receive in evidence therein letters or telegrams from purchasers of oil which shall state the amount of oil produced from said common source of supply that such purchaser will purchase during the period of time involved or the capacity of his transportation or marketing facilities which will be available for production from such common source during such period. (Sec. 110.)

¶11 All orders, rules, and regulations of the commission shall be regarded as prima facie, valid, reasonable, and just. (Sec. 111.)

¶12 The Interstate Compact, set out at section 204, provides in part as follows:

Article II. "The purpose of this compact is to conserve oil and gas by the prevention of physical waste thereof from any cause." (Emphasis ours.)

Article V. "It is not the purpose of this compact to authorize the states joining herein to limit the production of oil or gas for the purpose of stabilizing or fixing the price thereof, or create or perpetuate monopoly, or to promote regimentation, but

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