Railroad Commission of Texas v. Rowan Nichols Oil Co

• Citation: 311 U.S. 570,61 S.Ct. 343,85 L.Ed. 358
• Decision Date: 06 January 1941
• Docket Number: No. 218,218
• Parties: RAILROAD COMMISSION OF TEXAS et al. v. ROWAN & NICHOLS OIL CO
• Court: United States Supreme Court

311 U.S. 570

61 S.Ct. 343

85 L.Ed. 358

RAILROAD COMMISSION OF TEXAS et al.

v ROWAN & NICHOLS OIL CO.

No. 218.

Argued Dec. 12, 13, 1940.

Decided Jan. 6, 1941.

Mr. James P. Hart, of Austin, Tex., for appellants.

Mr. Dan Moody, of Austin, Tex., for appellee.

Mr. Justice FRANKFURTER delivered the opinion of the Court.

In conformity with the regulatory scheme devised by Texas for exploiting and safeguarding its oil resources, the Railroad Commission of that state in 1938 issued an order formulating a method for distributing among well owners the total amount of oil which it then allowed to be produced in the East Texas field. The enforcement of this order was enjoined by lower federal courts at the suit of the complainant in the present case, Rowan & Nichols Oil Company, D.C., 28 F.Supp. 131; 5 Cir., 107 F.2d 70. To avoid the dislocation resulting from this judicial frustration of its order, the Commission, by an order of September 11, 1939, had to devise a new plan of proration. Its action in doing so was again promptly challenged in a federal district court in Texas. A decree enjoining the Commission followed, and an appeal from that decree is the matter now before us. Judicial Code, §§ 238, 266, as amended, 28 U.S.C. §§ 345, 28 U.S.C.A. §§ 345, 380.

The challenged order of the Commission concededly satisfies all procedural requirements. It was part of a continuous process of administrative responsibility, preceded by a specific hearing affecting the immediate situation, with full opportunity given to the Oil Company to develop the facts and arguments which it later renewed below and here.

The Commission's action now in controversy cannot be severed from the earlier order which it replaced. Both set limits, incontestably valid, Champlin Rfg. Co. v. Commission, 286 U.S. 210, 52 S.Ct. 559, 76 L.Ed. 1062, 86 A.L.R. 403, on the daily production of the East Texas field. In both litigations the Oil Company claimed to be a victim of illegalities in the method of distributing this total allowable production among the different classes of oil producers.

So far as relief in the federal courts is concerned, we found in the prior phase of this continuing litigation that the order of the Commission was without infirmity. 310 U.S. 573, 60 S.Ct. 1021, 1023, 84 L.Ed. 1368; 311 U.S. 614, 61 S.Ct. 66, 85 L.Ed. —-. In the order which was then before us each well was allowed 2.32 per cent of its hourly potential production, except that wells not capable of producing 20 barrels a day at open flow were, in conformity with the Marginal Well Statute (Vernon's Texas Annotated Civil Statutes, art. 6049b), allowed full capacity and wells which could not produce over 20 barrels a day at 2.32 per cent of their hourly potential were allowed 20 barrels a day. The order distributed, in round numbers, a total allowable of 522,000 barrels as follows: 5,250 a day to 451 wells having a capacity of less than 20 barrels; 380,640 to 19,032 wells which at 2.32 per cent of hourly potential could not produce over 20 barrels; 136,610 to 6,325 wells at the rate of 2.32 per cent of hourly potential. This adjustment by the state's expert agency of what in our former opinion we called 'as thorny a problem as has challenged the ingenuity and wisdom of legislatures' was attacked on two grounds. It was claimed that an hourly potential formula fatally omitted other relevant factors, especially acre-feet of sand. Further it was urged that the minimum allowance of 20 barrels, which nearly absorbed the total production, constituted an illegitimate discrimination against highproducing and thinly drilled areas. We rejected these arguments as an attempt to substitute a judicial judgment for the expert process invented by the state in a field so peculiarly dependent on specialized judgment. We said in effect that the basis of present knowledge touching proration was so uncertain and developing, that sounder foundations are only to be achieved through the fruitful empiricism of a continuous administrative process. Further, that ought not to be stifled by drawing from the generalities of the Constitution allegiance to one as against another speculative assumption even though delusively clothed in formal findings of fact.

In the order now before us the Commission allowed a total production of 691,000 barrels, and the formula of allocation took into consideration two other factors—bottomhole pressure and the quality of the surrounding sand of the wells—as well as hourly potential. By this formula 514 wells incapable of producing 20 barrels a day at open flow absorbed 6,245 barrels, 25,456 wells were allotted a minimum of 20 barrels, thus absorbing 509,000 barrels, leaving 176,000 barrels to be distributed among these latter wells according to the new allocation formula. Under the first order the minimum per well allowance of 20 barrels accounted for 98 per cent of the limited production; under the later order only 75 per cent was needed to satisfy the 20 barrel allowance. The lease involved in this litigation was allowed by the first order an output of 154 barrels a day, or .029 per cent of the total allowable; now it may produce 260 barrels a day, which is .037 per cent of the total. This comparison of the practical operation of the two orders exposes the emptiness of the claim that a constitutional line can be drawn between them.

The accommodation of conflicting private interests in the East...