Railroad Com'n of Texas v. Pend Oreille Oil & Gas Co., Inc.
| Decision Date | 05 June 1991 |
| Docket Number | No. C-9937,C-9937 |
| Citation | 817 S.W.2d 36 |
| Court | Texas Supreme Court |
| Parties | RAILROAD COMMISSION OF TEXAS and Bill Forney, Inc., Petitioners, v. PEND OREILLE OIL & GAS COMPANY, INC., et al., Respondents. |
This case involves the application of the Mineral Interest Pooling Act (MIPA) 1 by the Texas Railroad Commission to a pooled gas unit in Live Oak County. The interest owner who was force pooled appealed the commission's decision through the administrative appeals process to the court of appeals. That court reversed in part, affirmed in part and partially vacated the district court's judgment, which affirmed the commission's order. 788 S.W.2d 878. The MIPA applicant, the MIPA contestant and the commission filed applications for writ of error, all of which we granted. This case presents three main questions. First, did the MIPA applicant make a fair and reasonable offer to pool voluntarily? Second, may the commission force pool, in a single MIPA proceeding, separate deposits of gas in man-made communication through a common well bore? Third, may the commission enter a final order in a MIPA proceeding that establishes an effective date which is coincident with the date of an earlier interim order entered in the same proceeding? We answer each of these questions in the affirmative. Consequently, we affirm the court of appeals' judgment in part and reverse in part.
On June 13, 1981, the Limes (Wilcox 9900) Field was discovered. This field consists of two natural gas reservoirs. In 1983, the L.L. Bennett et al. Gas Unit was established within the field. Pend Oreille Oil & Gas Company, Inc. is the working interest owner and operator of a producing gas well within the Bennett Unit. Next to the Bennett Unit are two tracts of land under an oil, gas and mineral lease to Bill Forney, Inc. Most of the Bennett Unit is within the Limes Field, but only a small portion of the Forney acreage extends into the Limes Field.
In 1983, a controversy developed concerning both the horizontal and vertical productive limits of the Limes Field and the allocation of allowables in the field, which, at that time, were allocated on a surface-acreage basis. On November 23, 1983, Pend Oreille filed an application with the commission to resolve the dispute. In December, the commission began hearings (productive acreage hearings), which consisted of approximately twenty days of hearings spread over more than a year. The commission's final order, of September 9, 1985, delineated the productive limits of the Limes Field and established productive net acre-feet as the basis for allocation of production.
Additionally, the commission's final order in the productive acreage hearings contained a finding that the Limes Field was underlain by two, separate, noncommunicating sand bodies known as the Main and Stray Sands. Previously, these sands were believed to be a common reservoir; however, during the productive acreage hearings, the Main Sand was determined to be at a deeper interval and separated by twenty-five feet of intervening shale from the Stray Sand. The commission also found: (1) the Main Sand does not appear to grow upward toward the Stray Sand; (2) the Stray Sand is a "stringer" 2 of the Main Sand; (3) these sands underlie portions of both the Forney acreage and the Bennett Unit; (4) the well bore from the Bennett Well perforates both sands and causes the commingling of gas from both reservoirs in the well bore; (5) production from the Bennett Well has been draining gas from beneath the Forney acreage; (6) it is not possible to isolate the Stray Sand from the Main Sand body because of the risk of formation damage and loss of one or both zones; (7) the productive acreage of the Main Sand would be calculated using the new, net acre-feet formula; and (8) the method for determining the productive acres in the Stray Sand would remain a surface-acreage formula. In light of all these findings, the commission granted a statewide rule 10 exception 3 to permit downhole commingling 4 in the Limes Field in those wells where it occurred. Pend Oreille did not appeal this final order.
Shortly after Pend Oreille filed its application in the productive acreage hearings, Forney made a written offer to it and all other interest owners in the Bennett Unit to pool voluntarily. Because Pend Oreille did not respond to the offer, Forney filed an application with the commission under the provisions of the MIPA. Forney's application sought an order establishing a 340-acre unit in which the productive acres of the Bennett Unit and the Forney tracts would be pooled.
On April 5, 1984, and on June 20, 1984, the commission held hearings on Forney's application (the MIPA proceedings). Because matters pertinent to the MIPA proceedings were going to be determined in the productive acreage hearings, the commission temporarily abated the MIPA proceedings and entered an interim order on May 7, 1984. This was done to regulate the private interests in the Bennett Well as if the proposed unit were formed and to protect Forney from economic injury. This order (1) established that 289 acres of the Bennett Unit and 36 acres of the Forney acreage are productive in the Limes Field, (2) granted the Bennett Unit a production allowable equal to that which would be granted a 325-acre unit in the Limes Field, pending a final order on the application, (3) provided that any allowable increment granted in the order would be rescinded and subject to make-up if the commission denied Forney's application, (4) ordered that proceeds attributable to the production allowable for acreage in excess of the 266 acres currently assigned to this well be paid into an escrow account, and (5) stated that the interim order would be superseded by entry of the final MIPA order.
For a time, Pend Oreille complied with the MIPA interim order to pay some of the proceeds from the Bennett Well's production into an escrow account. However, after the commission issued its final order in the productive acreage hearings, Pend Oreille stopped paying the proceeds into escrow. On June 20, 1986, Pend Oreille wrote the commission examiner in the MIPA proceeding, notifying him that it had stopped putting funds in escrow because the final order in the productive acreage hearings had changed the method for calculating allowables and failed to provide it with any additional acre-feet.
On June 6, 1987, the commission examiners submitted their amended Proposal For Decision (PFD), recommending that the Forney acreage be pooled into the existing Bennett Unit. The examiners decided that both the Main Sand and Stray Sand should be pooled. They found this action necessary to protect Forney's correlative rights, and that this was a more efficient use of resources than adopting Pend Oreille's position, which would require separate proceedings for each of the two sands.
Additionally, the examiners recommended that the commission adopt an effective date of 16 months before the issuance of the final order in the MIPA proceeding; that is, the period of time between the entry of the interim order in the MIPA proceedings and the entry of the final order in the productive acreage hearings. They based this recommendation upon the assumption that the interim order's effectiveness ceased when the commission changed the allocation formula for the field in the final order of September 9, 1985 in the productive acreage hearings.
On August 24, 1987, the commission entered its final MIPA order establishing a new gas unit that included the existing Bennett Unit and the Forney acreage lying within the Limes Field. This order force pooled the Main and Stray Sands as if they were a common reservoir. The commission's final order, however, did not adopt the examiners' recommendation for the effective date of the final MIPA order. Instead, the commission made the final order effective on May 7, 1984 (the date of the MIPA interim order). In changing the proposed effective date, the commission found:
An effective date of May 7, 1984, for the proposed unit will equitably allocate production and costs among said unit's owners because the subject well has been draining the proposed unit area, or its equivalent, since before this MIPA application was filed. The Commission issued an Interim Order in this Docket on May 7, 1984, treating the proposed unit as if it were established relative to Commission regulation of production from the subject well and to the mineral owners' interests, and providing the parties with a reasonable expectation the Commission by Final Order would establish a pooled unit pursuant to the subject application thereby continuing the effect of the Interim Order on the mineral owners' interests in production from the subject well.
Pend Oreille appealed from this final order, and the district court affirmed. Pend Oreille appealed, once again.
The court of appeals reversed in part, affirmed in part and partially vacated the district court's judgment. The court of appeals held that the commission had no authority to force pool the Main and Stray Sands as a common reservoir. 788 S.W.2d at 883. The court found that the commission correctly determined that Forney's offer to pool voluntarily was fair and reasonable. Id. at 884. Finally, the court found that "the final MIPA order establishing a retroactive date of May 7, 1984 is constitutional as applied to the period of May 7, 1984 to September 8, 1985, but that it is unconstitutional as applied to the period of September 9, 1985 to August 24, 1987." Id. at 886.
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