State Oil and Gas Bd. v. Mississippi Mineral & Royalty Owners Ass'n

• Decision Date: 28 June 1971
• Docket Number: No. 46265,46265
• Citation: 258 So.2d 767
• Parties: The STATE OIL & GAS BOARD et al. v. MISSISSIPPI MINERAL & ROYALTY OWNERS ASSOCIATION et al.
• Court: Mississippi Supreme Court

Page 767

258 So.2d 767

The STATE OIL & GAS BOARD et al. v. MISSISSIPPI MINERAL & ROYALTY OWNERS ASSOCIATION et al.

No. 46265.

Supreme Court of Mississippi.

June 28, 1971.

Dissenting Opinions Aug. 10, 1971.

Rehearing Denied March 6, 1972.

A. F. Summer, Atty. Gen., by Carl F. Andre , Asst. Atty. Gen., John M. Grower, Brunini, Everett, Grantham & Quin, Heidelberg, Woodliff & Franks, Jackson, Vernon L. Terrell, Jr., New Orleans, for appellants.

Michael R. Eubanks, Lumberton, Williams & Williams, Poplarville, for appellees.

PER CURIAM:

After due, legal and proper notice, and after a full hearing, the State Oil and Gas Board of Mississippi amended its Statewide Rules 7 and 8, widening and increasing the spacing pattern for oil and gas wells drilled below 12,000 feet and in the Pennsylvanian and older formations below a measured depth of 3500 feet, to a drilling unit of 80 acres for an oil well and a drilling unit of 640 acres for a gas well.

Issue was joined by the Mississippi Mineral and Royalty Owners Association, which consists of several hundred members from all sections of Mississippi and a number of nonresidents who own oil, gas and minerals in the great majority of the producing fields in Mississippi and other mineral and royalty owners, in the Answer and Contest. On behalf of all of these protestants, the Association answered and contested the Petition of Shell Oil Company for wider spacing, and joined in all phases of the hearing before the Board.

The Association appealed from the Orders of the Board, amending Statewide Rules 7 and 8, to the Circuit Court of '(T)he decision and orders amending Statewide Rule No. 7 and Statewide Rule No. 8 are in error, and are contrary to law, and are not supported by substantial evidence and should be reversed.'

Pearl River County. Without opinion and in a short Order, the Circuit Court found that:

The Court then proceeded to order and adjudge that:

'(T)his cause be, and the same is hereby, reversed, and the petitions of Shell Oil Company et al to amend Statewide Rules 7 and 8 be, and the same are hereby, denied and dismissed, with prejudice.'

Shell Oil Company and others who joined in its petition, as well as the State oil and Gas Board, thereupon appealed to this Court.

In discussing the duties, responsibilities and powers of the State Oil and Gas Board of Mississippi, this Court said, in Stack, Jr. et al. v. Harris, 242 So.2d 857 (Miss.1971):

'The board is an arm of the state empowered by the legislature to prescribe rules and regulations for achieving in practice this policy of the state as announced in Section 1 of the Act and to enforce, maintain and carry out the said policy of the state.' 242 So.2d at 860.

Section 1 of the Conservation Act referred to in Stack (Section 6132-01) Mississippi Code 1942 Annotated (Recomp.1952), declares it to be in the public interests:

'(T)o foster, encourage and promote the development, production and utilization of the natural resources of oil and gas in the state of Mississippi; * * * and to obtain, as soon as practicable, consistent with the prohibition of waste, the full development by progressive drilling of other wells in all producing pools of oil and gas or of all pools which may hereafter be brought into production of such, within the state, until such pool is fully defined.'

In defining and enumerating broad and extensive powers of the State Oil and Gas Board, the Mississippi Legislature said:

'(c) The board shall have the authority, and it shall be its duty, to make, after notice and hearing as hereinafter provided, such reasonable rules, regulations and orders as may be necessary from time to time in the proper administration and enforcement of this act, and to amend the same after due notice and hearing, including, but not limited to rules, regulations and orders for the following purposes:

'(11) To regulate the spacing of wells and to establish drilling units.' Miss.Code 1942 Annotated § 6132-10 (Supp.1970).

We adopt as our own the excellent Opinion and Findings of the Board on the many issues of fact confronting it in this case, which Opinion and Findings are, as follows:

After due and proper notice, and after the docket had been continued for two terms, the matter of the amendment of Statewide Rules 7 and 8 came on for consideration this day.

Various proposals were made to the Board regarding the possible change in such rules. In the main, it was proposed that Statewide Rule 7 governing the spacing of oil wells be amended so as to provide for 80-acre spacing for wells producing from the deeper beds and to change Statewide Rule 8 to provide for spacing of 640 acres for each gas well producing from the deeper beds. A brief historical background of the oil and gas industry of the state insofar as the same relates The first production of hydrocarbons discovered in the State of Mississippi was in the Amory and Jackson gas fields in the late 1920s, which were of limited significance. The first major discovery was in the year 1939 when the Tinsley Field was discovered, which over the years has been a highly prolific oil field producing primarily from the Selma Chalk and the Eutaw geological formations. In the area of the Tinsley Field these productive formations are encountered at a depth of approximately 4,700-5,500 feet. Subsequent to the discovery of the Tinsley Field, other significant Eutaw fields were discovered, including Heidelberg, Yellow Creek, Eucutta, and Pickens, all of which were productive from what is now considered to be shallow depths.

to the spacing of oil and gas wells is as follows:

It then became apparent to the Legislature of the State of Mississippi that it was necessary to enact into law a workable conservation act; and as a result, the 1948 Session of the Legislature enacted the present Conservation Act which over the course of the years has been amended in only minor respects. This Act vested in the State Oil and Gas Board as then created the duty and obligation to promulgate such rules as were necessary for the proper administration of the oil and gas industry within the state and such as would conserve this natural resource.

Pursuant to such authority, in the year 1951 the Oil and Gas Board, after extensive hearings, adopted certain rules, two of which were Rules 7 and 8 which are here under consideration. In the year 1951 almost the whole of the production within the state was at a depth of 6,000 feet or less, the only exception being certain Tuscaloosa production in the southwest portion of the state. At that time the Board, according to some of its critics, arbitrarily set the spacing for oil wells at 40 acres and the spacing for gas wells at 320 acres. The Board then acted upon its best judgment based upon its own experience and the cumulative experience of all of the oil-producing states within the Union. The function of spacing is often misunderstood, the real purpose being to control well density and to prohibit the 'bunching' of oil wells which results in waste and inequities. Therefore, the thing of primary importance is well density rather than the amount of surface acreage which is allotted to the production of one well bore, be it either oil or gas.

The spacing pattern of 40 acres for oil wells and 320 acres for gas wells has proved to be an effective spacing for the production of the shallower beds and resulted in a minimum of inequities. Following the adoption of this rule, unknown to many people who are presently interested in the oil and gas industry in the state, the state was the recipient of a rather widespread drilling program which resulted in the discovery of many fields, some of which are still productive and some of which will be productive for many years to come.

In the year 1951, when the present spacing rules were adopted, it was contended that a statewide spacing pattern could not be adopted because of the variations in the characteristics of the many reservoirs and that to do so would not be in protection of the co-equal and correlative rights of the owners in interest. It was also contended at that time that such a pattern was excessive in size.

In the year 1954, in the Soso Field of Jasper, Jones and Smith Counties, Mississippi, the production of oil was obtained from the Lower Cretaceous formation occurring in this field at the approximate depth of 12,000 feet. This discovery set off the second major cycle for the exploration of oil and gas in our state and resulted in the discovery of further productive reservoirs. Many of the reservoirs encountered at such deeper depths proved to be small in areal extent and in many instances having very limited reserves.

The limited reserves so encountered in many instances discouraged the development of such reservoirs because of excessive cost in drilling to and operating the deeper beds. It is at this point that economics became a major factor and of serious concern to those who were willing to invest the risk capital to develop this industry.

The Board was then asked to adopt wider spacing for certain fields, and the Board determined in many instances that the deeper reservoirs could be effectively and efficiently drained with less than one well per 40-acre unit. In almost every instance the deeper beds are under greater pressures and have reservoir characteristics which enable one well to drain an area in excess of 40 acres and a minimum of 80 acres.

In the year 1965 the Bay Springs Field was discovered, being the first field of significant proportions found in the Jurassic geological formations, which includes Cotton Valley, Smackover and Norphlet, all of which formations are now in production within the state. The Cotton Valley reservoir in the Bay Springs Field is productive from an approximate measured depth of 14,500 feet. This discovery again set off a major drilling cycle within the state, being the third such cycle. Most of the wells now being drilled, exclusive of the area of the...