Rutter & Wilbanks Corp. v. Oil Conservation Commission

• Decision Date: 21 February 1975
• Docket Number: No. 9907,9907
• Citation: 87 N.M. 286,532 P.2d 582,1975 NMSC 6
• Court: New Mexico Supreme Court
• Parties: RUTTER & WILBANKS CORPORATION, a Texas Corporation, Petitioner- Appellant, v. OIL CONSERVATION COMMISSION of the State of New Mexico, Respondent-Appellee, and Black River Corporation, Intervenor-Appellee.

Page 582

532 P.2d 582

87 N.M. 286

RUTTER & WILBANKS CORPORATION, a Texas CorporationPetitioner- Appellant, v.OIL CONSERVATION COMMISSION of the State of New MexicoRespondent-Appellee and Black River Corporation, Intervenor-Appellee.

No. 9907.

Supreme Court of New Mexico.

Feb. 21, 1975.

[87 NM 287] Kellahin & Fox, Santa Fe, for appellant.

David L. Norvell, Atty. Gen., William F. Carr, Special Asst. Atty. Gen., Santa Fe, for Oil Conservation Comm.

Hinkle, Bondurant, Cox & Eaton, Harold L. Hensley, Jr., Roswell, for Black River Corp.

OPINION

STEPHENSON, Justice.

This appeal arises out of two suits brought in the District Court of Eddy County to reverse orders entered by the Oil Conservation Commission(the Commission) in August and November, 1972, which created two 'nonstandard gas proration units' and force pooled the tracts comprising the units, which are in the Washington Ranch--Morrow Gas Pool.After separate hearings before the Examiner, the cases were consolidated for hearing before the full Commission as well as for trial before the district court.After reviewing the record and hearing argument, the district court upheld the Commission's decisions.Rutter and Wilbanks Corporation(R & W) is the only party to the proceedings below who contests the district court's ruling.

R & W is the owner of overriding royalty interests in the northerly portion of each of the two units consisting of the east half (409.22 acres) and the west half (407.20 acres) of Section 3, Township 26, South, Range 24, East, N.M.P.M., Eddy County.The effect of the Commission's orders was to include certain undrilled areas in the southern portion of the section within the two drilling units, each of which had a completed gas well, thus diluting the overriding royalty interests of R & W.

R & W did not, and does not here, object to the compulsory pooling but only to the size of the non-standard units.It contends the Commission orders are 'unlawful, unreasonable, arbitrary and capricious' because (1) the Commission did not comply with the statestatutes regulating oil and gas wells in creating 'the non-standard proration units' and (2) the orders do not protect the correlative rights of R & W as required by law.

The district court reviewed the record of the administrative hearing and concluded, as a matter of law, that the Commission's orders were substantially supported by the evidence and by applicable law.We make the same review of the Commission's action as did the district court.Grace v. Oil Conservation Com'n, N.M., 531 P.2d 939(decided January 31, 1975);El Paso Natural Gas Co. v. Oil Conservation Com'n, 76 N.M. 268, 414 P.2d 496(1966).We are restricted to considering whether, as a matter of law, the action of the Commission was consistent with and within the scope of its statutory authority, and whether the administrative orders are supported by substantial evidence.McDaniel v. New Mexico Board of Medical Examiners, 86 N.M. 447, 525 P.2d 374(1974);Otero v. New Mexico State Police Board, 83 N.M. 594, 495 P.2d 374(1972);Seidenberg v. New Mexico Board of Medical Exam., 80 N.M. 135, 452 P.2d 469(1969);Llano, Inc. v. Southern Union Gas Company, 75 N.M. 7, 399 P.2d 646(1964);Cameron v. Corporation Commission, Okl., 414 P.2d 266(1966).

R & W's first contention is without merit.The argument is that the applicable statutes make no distinction between 'spacing units' and 'proration units' and that because the orders were inadvertently characterized as creating 'non-standard proration units', the Commission could not create these spacing units without first determining that they qualified as proration units under § 65--3--14(b),N.M.S.A. 1953.There is no question that what the Commission intended to do, and in fact did, was to create two non-standard spacing units.Before the Commission, R & W expressly rejected any need or desire for the gas pool to be prorated.R & W's authority for this proposition is a footnote to an oil and gas text which recites:

'In states like New Mexico, Louisiana, Oklahoma, Arkansas and others where the conservation agency is authorized to create drilling or spacing units and to limit and prorate the production of oil or gas, or both, the terms drilling unit and proration unit become practically synonymous.'1A Summers, Oil and Gas§ 95 at 52 n. 16 (2nd ed. 1954).

Were this case controlled by § 69--213 1/2,N.M.S.A. 1941(Supp.1949), the statute which Professor Summers cites for the foregoing statement, R & W might have a colorable argument since no explicit distinction between the two terms was made therein.Since 1949, however, the Act has been amended several times, the most recent occurring in 1961.The progeny of § 69--213 1/2, supra, is § 65--3--14,N.M.S.A. 1953, as amended.That section and others in the act explicitly maintain the distinction by the use of the phrase 'spacing or proration unit', indicating that the terms are not synonymous and implying that a spacing unit may be created independently of a proration unit.See§ 65--3--14(c),N.M.S.A. 1953(Supp.1973), § 65--3--14.5,N.M.S.A. 1953(Supp.1969).Additionally, the section upon which R & W relies, § 65--3--14(b)supra, commences with 'The commission may establish a proration unit for each pool, * * *.', indicating the permissive character of the power.

The authority of the Commission to create spacing units is found in § 65--3--11,N.M.S.A. 1953, as amended.The second paragraph of this section provides:

'Apart from any authority, express or implied, elsewhere given to or existing in the commission by virtue of this act or the statutes of this state, the commission is hereby authorized to make rules, regulations and orders for the purposes and with respect to the subject matter stated herein, viz.:

'(10) To fix the spacing of wells;

'* * *.'

Pursuant to this authority, the Commission has provided for well spacing by adoption of Rule 104.The applicable section says that:

'Unless otherwise provided in the special pool rules, each development well for a defined gas pool of Pennsylvanian age or older which was created and defined by the Commission after June 1, 1964, shall be located on a designated drilling tract consisting of 320 surface contiguous acres, more or less, comprising any two contiguous quarter sections of a single governmental section, being a legal subdivision of the U.S. Public Land Surveys. * * *'N.M. Oil Conservation Com'n Rules and Reg., No. 104(C)(II)(a)(1972).

This rule sets the general standard for creating spacing units.There is no dispute that the units created here satisfy the requirements of the rule cited above.We find no merit to R & W's contention and hold the Commission has power to fix spacing units without first creating proration units.

R & W does not 'question the Commission's authority to create non-standard (spacing) units' under § 65--3--14.5(C),N.M.S.A. 1953(Supp.1969) which provides:

'C.Nonstandard spacing or proration units may be established by the commission and all mineral and leasehold interests in any such nonstandard unit shall share in production from that unit from the date of the order establishing the said nonstandard unit.'

But R & W then makes an unlawful delegation argument based on inadequate standards regarding the Commission's authority under § 65--3--14.5, supra, or under a Commission rule or regulation.It contends the Commission exceeded its authority because it had no standards to follow in creating the non-standard spacing units in excess of the 320 acre standard spacing unit provided for in Rule 104(C), supra.We disagree.

Section 65--3--10,N.M.S.A. 1953 provides:

'The commission is hereby empowered, and it is its duty, to prevent the waste prohibited by this act and to protect correlative rights, as in this act provided.To that end, the commission is empowered to make and enforce rules, regulations and orders, and to do whatever may be reasonably necessary to carry out the purposes of this act, whether or not indicated or specified in any section hereof.(Emphasis added).

Additionally, N.M. Oil Conservation Com'n, Rules and Reg. No. 104(L)(1971) specifically provides:

'L.In order to prevent waste the Commission may, after notice and hearing, fix different spacing requirements and require greater acreage for drilling tracts in any defined oil pool or in any defined gas pool notwithstanding the provisions of B and C above.'(Emphasis added).

We think it would be impracticable and unreasonable to require legislation setting out more precise standards than those provided above.SeeOxford Oil Co. v. Atlantic Oil & Producing Co., 16 F.2d 639(N.D.Tex.1926), aff'd, 22 F.2d 597(5th Cir.1927);Brown v. Humble Oil & Refining Co.,126 Tex. 296, 83 S.W.2d 935, reh. denied, 126 Tex. 296, 87 S.W.2d 1069(1935).We hold these standards sufficient to allow the Commission's power to prorate and create standard or non-standard spacing units to remain intact.The fact that more explicit standards appear in particular sections of the conservation statutes does not dictate a different result.

R & W also argues the Commission's authority to pool is limited to lands 'embraced within a spacing or proration unit' citing § 65--3--14(c),N.M.S.A.1953(Supp.1973).Relying on several treatises explaining that compulsory pooling statutes grew out of the 'small tract problem', R & W draws the conclusion that § 65--3--14(c)'assumes that the tract sought to be pooled is 'embraced within' a standard spacing (320 acres) or proration unit'.See6 Williams & Meyers, Oil & Gas Law§ 905.2(1972).The unstated implication of this contention is that the Commission's power to pool is limited to tracts within 320 acre standard spacing units.Rule 104(L), supra, disposes of this argument.Recognizing the Commission's power to pool separately owned tracts 'within a spacing or proration unit'(§ 65--3--14(c), supra), as well as its concomitant authority to...