Pickens v. Railroad Commission

• Decision Date: 10 February 1965
• Docket Number: No. A-10116,A-10116
• Citation: 387 S.W.2d 35
• Parties: W. L. PICKENS et al., Appellants, v. RAILROAD COMMISSION of Texas et al., Appellees.
• Court: Texas Supreme Court

Page 35

387 S.W.2d 35

W. L. PICKENS et al., Appellants, v. RAILROAD COMMISSION of Texas et al., Appellees.

No. A-10116.

Supreme Court of Texas.

Feb. 10, 1965.

Rehearing Denied March 10, 1965.

Prentice Wilson, Roach & Robertson, Dallas, Fred Erisman, Longview, J. W. Hassell, Jr., Dallas, for appellants.

Waggoner Carr, Austin, Atty. Gen., Linward Shivers, Joseph Trimble, Asst. Attys. Gen., Powell, Rauhut, McGinnis, Reaveley & Lochridge, B. D. St. Clair, Austin, Robert B. Payne, Dallas, R. J. Stanton and H. D. Bushnell, Tulsa, Okl., Robert F. LeBlanc, Gentry Lee, C. C. Cammack, Bartlesville, Okl., Alfred O. Holl, William P. Gibson and Wallace G. Malone, Dallas, for appellees.

GREENHILL, Justice.

The main question here is the validity of the order of the Texas Railroad Commission prorating the production allowable of oil from the Fairway (James Lime) Field in Anderson and Henderson Counties, Texas. The order fixed the rate at which the various owners of the oil could produce. The district court found the order to be reasonably supported by substantial evidence and upheld it. W. L. Pickens and others have brought the case to us by direct appeal. The main law question before us is the same as that before the district court: Is the Commission's proration order reasonably supported by substantial evidence?

The formula under attack has two basic elements: (1) the number of surface acres in the production unit on which there is a well, usually 160 acres; and (2) the number of acre-feet of productive sand or rock which are within, or below, the 160 surface acres. The acre-foot is a measure of volume. Some surface acres of the field have, vertically, a thicker section of productive sand below them. An acre-foot, as used here, refers to a horizontal square acre with a thickness of one foot of productive sand. An acre-foot contains 43,560 cubic feet of oil or gas-bearing formation.

In addition to pleading that the order was unreasonable because it did not protect their correlative rights and would permit uncompensated drainage, Pickens et al. pleaded that any formula which was not 'based solely on net acre-feet of pay underlying each unit tract' would be unreasonable, would fail to protect their correlative rights, and would deprive them of their property without due process of law. Their witness's testimony was that the formula should have been based 100 percent on acre-feet of productive sand.

The proration order was arrived at in the following manner: the Commission each month determines the amount of oil to be produced from all fields in Texas. It divides this amount among the various fields. The total amount this particular field may produce is determined from time to time and is not fixed in the proration allowable formula here attacked. What the proration order does is to allocate to the wells in the field the part of the total field allowable which each well may produce. There are some exceptions because some wells have but limited capacity, others have a high gas-oil ratio, and so forth. Those wells are given particular allowables and are not here involved. The remaining volume of oil, whatever it is, is divided in half: onehalf of the oil is allocated to the wells in that proportion which their assigned surface acreage in the oil field (usually 160 acres) bears to the total acreage in the field (about 21,000 acres); and the other half is distributed among the same wells in that proportion which their assigned acrefeet, their net acre-feet, bears to the total acre-feet in the field. Thus it is said that the formula allows 50 percent for acreage (up to 160 surface acres), and 50 percent for acre-feet.

The Fairway (James Lime) Lield was discovered in 1960. It is located in a single structure, a common reservoir, some 9,500 feet below the surface. Early in 1961, the Commission issued an order prorating the field's production on the basis of a formula which was weighted to allow 50 percent for the producing well itself. This is called a 'per well' factor. The other 50 percent was credited to surface acreage in the producing unit up to 160 cares. So the first formula was 50 percent per well and 50 percent for surface acreage.

On March 8, 1961, and February 14, 1962, this Court handed down its opinions in the Normanna ¹ and Port Acres ² cases. Those opinions invalidated particular gas proration orders in those fields which contained a substantial (one-third) 'per well' factor. Thereafter on May 23, 1962, the Commission withdrew its Fairway Field proration formula which contained the 50 percent 'per well' factor and promulgated a proration schedule based 100 percent on surface acreage in each producing unit.

The spacing pattern was, and is, basically 160 acres to the well. No small tracts are here involved. Under that formula, the allowable oil production for each well was determined entirely by the number of surface acres, up to 160, which were situated over productive sand or orck. Pickens protested this formula but did not appeal.

In November and December of 1962, the Commission held a new hearing. On March 6, 1963, it promulgated the order here in question. The Commission retained 160 acres as the spacing unit for wells (about which there is no controversy); and, as stated, it announced that the proration of the allowable production of oil among the wells would be based on a fraction made up of two factors: (1) 50 percent for the number of surface acres over the productive strata, and (2) 50 percent for the number of acre-feet in the production unit. This '50 percent acreage, 50 percent acrefeet' formula will be hereafter referred to as the '50-50 formula.' It must be borne in mind that it differs very substantially from another 50-50 formula previously used which allocated 50 percent to the well alone and 50 percent to surface acres.

The total allowable for the field is approximately 40,000 barrels per day. At the time of issuance of the order, there were 135 wells in the field, three of which were operated by Appellant Pickens. On the basis of surface acres in the field, each well on a 160-acre tract would be allowed to produce approximately 302 barrels per day. The witness Latimer testified that when the field was prorated on a 100 percent acreage basis, Appellant Pickens' three wells on 480 of the field's 21,000 acres had an allowable of 333 barrels per day each. The effect of the 50-50 formula was to raise his allowable to between 362 and 378 barrels per well per day. The allowables on other wells having fewer acre-feet were lowered. For example, the Sun Oil Company's Lloyd #1 Well had an allowable of 233 barrels per day under the 50-50 formula.

Pickens and others filed suit in Travis County on April 8, 1963, to attack this order of March 6, 1963. They contend, among other things, that it was unreasonable and was not supported by substantial evidence, mainly, in that it discriminates against people who have the most oil in place under their surface acres, i. e., the most acre-feet; and it allows, they say, an undue advantage to those having the same surface acreage over the oil but fewer acre feet of oil in place. They also contend that it will bring about undue uncompensated draining which will ultimately result in their great financial loss. Pickens et al. seek to bring this case within the decisions of the Normanna and Port Acres cases, supra, as well as the decision in Railroad Commission v. Shell Oil Co., 380 S.W.2d 556 (Tex.1964), which passed upon the proration order in the Quitman Field.

The Commission's order is presumed to be valid. The question is not whether the Commission came to a proper factual conclusion on the basis of conflicting evidence, but whether it acted arbitrarily and without regard to the facts. Railroad Commission v. Manziel, 361 S.W.2d 560 (Tex.1962). Our duty is to look to the record as a whole to see whether the order of the Commission is reasonably supported by substantial evidence. While we look to the record as a whole, our duty is to determine whether there is in the record competent evidence which reasonably supports the order. The evidence is voluminous; of necessity it must be greatly condensed.

The oil-bearing strata in question is several miles across, and is elevated about 130 feet toward its center. The thickest of the oil-saturated sand or rock (some 115 feet vertically) is in the central part of the strata or field. It is not located over subsurface water. If the field could be sliced and looked at vertically, the oil-bearing portion or strata could roughly be compared to an elongated, very gradually sloping crescent, the entire center of which is elevated toward the surface. It may be described as a symmetric recumbent anticline. The 'thick' area of the field, which has the most acre-feet of oil-bearing rock, is updip (at a higher elevation in the structure) from the thinner sections which are toward the ends of the crescent. The thinnest producing rock or sand is some 15 feet thick. The average thickness is about 77 feet. The argument of Pickens is that since there is an average of 77 acre-feet of producing sand below each average surface acre, the 50-50 formula is weighted overwhelmingly in favor of surface acres as contrasted to acre-feet of producting sand. There is not, they say, one acre-foot for each surface acre (which they say would make a 50-50 allocation more equitable), but an average of 77 acre-feet for each surface acre. Hence the areas of thickest sands are not being allowed to produce in proportion to the reserves in place.

Pickens and others relied upon the testimony of H. J. Gruy, a consulting petroleum engineer and geologist. He projected the 77-to-1 figures mentioned above to show that Pickens et al. will ultimately recover amounts substantially less under the 50-50 formula than they would if the formula used were based 100 percent on the number of acre-feet under each tract. His testimony was that oil wells would drain in...