Railroad Commission v. Humble Oil & Refining Co., 9528.

• Decision Date: 06 March 1946
• Docket Number: No. 9528.,9528.
• Citation: 193 S.W.2d 824
• Parties: RAILROAD COMMISSION et al. v. HUMBLE OIL & REFINING CO. et al.
• Court: Texas Court of Appeals

Page 824

193 S.W.2d 824

RAILROAD COMMISSION et al. v. HUMBLE OIL & REFINING CO. et al.

No. 9528.

Court of Civil Appeals of Texas. Austin.

March 6, 1946.

Rehearing Denied April 10, 1946.

Appeal from District Court, Travis County; J. Harris Gardner, Judge.

Suit by Humble Oil & Refining Company and others against Railroad Commission of Texas and others to determine the validity of an order of the Railroad Commission of Texas. From judgment canceling the order and granting ancillary injunctive relief, defendant appeals.

Judgment reversed and rendered for defendant.

Grover Sellers, Atty. Gen., and Fagan Dickson, Elton M. Hyder, and Ray Lynch, Asst. Attys. Gen., for appellants Railroad Commission of Texas and Attorney General of Texas.

Woodward & Gay, of Austin, Weeks, Hankerson & Surles, of Tyler, J. K. Brim, of Sulphur Springs, and Hart & Brown, by James P. Hart, all of Austin, for appellants Chas. F. Ashcroft et al.

J. A. Rauhut, of Austin, Nelson Jones, of Houston (Rex G. Baker, and R. E. Seagler, both of Houston, and Powell, Wirtz, Rauhut & Gideon, of Austin, of counsel), for appellee Humble Oil & Refining Co.

Dan Moody, of Austin, for appellees who were plaintiffs-interveners in the trial court.

McCLENDON, Chief Justice.

This is an oil proration suit challenging the validity of an order of the Commission (Railroad Commission of Texas), dated August 3, 1944 (copied in full in note below¹), amending its previous order prorating the field allowable of the Hawkins field in Wood County among the wells in that field (other than marginal and high gas-oil ratio wells, not here involved), upon what is popularly termed a 50-50 basis; that is, in substance, allocating one-half the daily allowable on a per well basis and the other half upon a surface acreage basis. The spacing rule in the field (concededly proper by all parties) was twenty acres. Under this formula a well on less than one acre was given one-half the allowable of a well on 20 acres; or, stated differently, a well on a 20-acre tract could not have in excess of double the allowable of a well upon a tract of less than one acre; the acreage allowable being allocated upon the basis of 5% per acre up to and including 20 acres. The amendment of August 3, 1944, which was predicated upon the Federal P.A.W. (Petroleum Administration for War) order (M68) denying priorities for drilling material on tracts less than 40 acres, increased the acreage allowable of one well on a tract of more than 20 acres by 10% for each additional acre up to and including 40 acres. The effect of this amendment, which by its terms will expire six months after the termination of the present emergency or "the lifting of P. A. W. restrictions on drilling," was to give one well on a 40-acre tract twice the allowable of a well on a 20-acre tract or four times the allowable of a well on a tract less than one acre. This formula, except for the 40-acre amendment of August 3 1944, had been in effect since February 1941, shortly after the field was discovered, except for a slight amendment, not here important, made in April 1941. P.A.W. Rule M68 was promulgated in December 1941.

The suit was brought by the Humble (Humble Oil & Refining Company, the largest producer in the field) against the Commission and its members. Several royalty owners intervened as parties plaintiff adopting the pleadings of the Humble; and a number of operators owning leases on small tracts in a densely drilled portion of Hawkins townsite, intervened as parties defendant.

The Humble's petition states that the effect of the amendment, under the present field allowable, is demonstrated by the following table:

                                               .1      .5     1.0      20      40
                                              Acre    Acre    Acre    Acres   Acres
                Schedule daily allowable
                  under former order           65      66      67      130     130
                Schedule daily allowable
                  under amendment              46      47      48       92     184
                

And further:

"The Hawkins Field in Wood County, Texas, consists of approximately 9500 productive acres and on February 1, 1945, the field contained 405 producing oil wells. The Hawkins townsite, which is divided into small lots and blocks, occupies approximately 137 acres of said field and contains 91 of said wells. Eighty-seven of these townsite wells were drilled on a total of 73.7 acres. The field outside the townsite, consisting of approximately 9363 acres, contained 314 producing oil wells on February 1, 1945. All of the wells in the Hawkins Field, including the townsite wells, produce oil from one common reservoir."

The suit is predicated upon the assertion that the order is confiscatory as between large and small tracts, against the former, which are chiefly owned by Humble, and in favor of the latter, in that it denies to Humble "a fair chance to produce its share of the oil in said common reservoir, with the result that plaintiff's properties are suffering net, uncompensated drainage to the wells of said townsite operators at the rate of approximately 2,500 barrels of oil per day."

The judgment cancelled the order appealed from and granted ancillary injunctive relief, upon jury findings upon two special issues, that if allowed to remain in effect during the life of the Hawkins field the order will:

1. Prevent Humble "from producing the recoverable oil now in place under its land, or the equivalent in kind of such oil"; and

2. Prevent the operator of wells on any tract in which any one of certain designated parties (plaintiff-interveners) "owns royalties or working interests from producing the recoverable oil now in place under such tract, or its equivalent in kind of such oil."

The Commission and defendant-interveners have appealed.

In the main the grounds of error relied upon by appellants may be substantially stated in the following four contentions; in the first of which the Commission does not join:

1. Since no issue of waste, but only that of correlative rights is involved, the Humble and others interested in the field are estopped from questioning the order, because they agreed among themselves upon the formula prescribed by the order and urged and acquiesced in its adoption by the Commission. This defense was stricken out on exception to defendant-interveners' pleadings.

2. It was error to exclude evidence of such agreement and position taken before the Commission, since it had material bearing upon the reasonableness of the order and the exercise by the Commission of its discretionary power in making it.

3. The order was not unreasonable or confiscatory, but was well within the discretionary powers of the Commission, and should have been upheld as a matter of law.

4. The proper test whether the order was confiscatory was whether it afforded Humble and others a fair opportunity to produce, and not (as presented in the special issues) whether it would prevent them from producing the recoverable oil or its equivalent underlying their lands. This contention is raised in objections to the special issues and refusal of requested special issues and explanatory charges.

We are sustaining the third of these contentions; and since the other three under this holding are without controlling effect we will state our views thereon only generally.

As to the first: We held in Railroad Commission v. Mackhank, Tex.Civ. App., 186 S.W.2d 351, that where no issue of conservation is involved, owners of adjoining leases may execute contracts, binding between themselves, with reference to their correlative rights. The case was taken to the Supreme Court upon another issue, as to which the decision of that court was expressly limited. 190 S.W.2d 802. We refer to our opinion in that case for our views upon this question. In our opinion neither the facts alleged nor those offered in evidence in the instant case embrace the essential elements of contract or estoppel, which were clearly present in the Mackhank case. Generally speaking, and without going into extended detail, the allegations and proffered evidence were to the effect that shortly after the field was discovered and prior to the first proration or spacing order, there was a meeting at the Hawkins schoolhouse of all or practically all parties interested in the field; at which the question of the proper spacing and proration order was thoroughly discussed, and an agreement was reached substantially in accordance with the Commission order; and that this formula was presented to the Commission and acquiesced in by the Humble; its attorney making certain statements commendatory of its fairness both in the first Commission hearing, and later when the first amendment of the order was made. At a hearing before the Commission in February 1942, a petition signed by all but two of plaintiff-interveners alleged:

"Heretofore you have issued field rules for the Hawkins Field in Wood County, Texas. These rules allocate the allowable production among the wells in the field by employing a formula which it was contemplated would ultimately allow a well on twenty acres to produce about two times as much oil as a well on one acre or less in the Hawkins townsite. The order was entered by the Commission after a full hearing and after the operators and royalty owners involved had agreed in principle to such an allocation formula."

This petition was presented by Humble's attorney, who stated to the Commission at the time:

"The present basis of allocation in the field was worked out as a compromise measure between those who hold acreage in the townsite and those who hold acreage outside the townsite; and it was unanimously, as I remember, recommended to the Commission by operators in the townsite and outside the townsite. It was felt at the time that, in view of the fact that it would be necessary to drill more wells inside the townsite than outside the townsite, some concession should be made to that fact, and, as a basis, an allocation was...