Superior Oil Co. v. Foote

• Decision Date: 26 May 1952
• Docket Number: No. 38416,38416
• Citation: 214 Miss. 857,59 So.2d 85,37 A.L.R.2d 415
• Parties: , 37 A.L.R.2d 415 SUPERIOR OIL CO. v. FOOTE et al.
• Court: Mississippi Supreme Court

Page 85

59 So.2d 85

214 Miss. 857, 37 A.L.R.2d 415

SUPERIOR OIL CO. v. FOOTE et al.

No. 38416.

Supreme Court of Mississippi.

May 26, 1952.

Suggestion of Error Overruled July 17, 1952.

See 59 So.2d 844.

Wells, Thomas, Wells & Smith, Jackson, Miss., W. B. Wagner, Murray Christian, Houston, Tex., for appellant.

Buchanan & Montgomery, Laurel, for appellees.

ETHRIDGE, Justice.

This case is concerned with the constitutional basis of a statute authorizing the State Oil and Gas Board to require all of the owners in the oil or gas drilling unit to pool and integrate their interests in the unit in order to prevent waste or the drilling of unnecessary wells, and the legality of an order of the Board under that act. We affirm the validity of both the statute and the order.

In 1948 the Mississippi Legislature enacted the Oil and Gas Conservation Act of that year. Miss.Laws 1948, Chap. 256. Sec. 10(a) authorized the Board under stated circumstances to require all persons owning interests in a drilling unit of 40 acres in area or less to integrate their interests and to develop their lands as a drilling unit. In 1950 Sec. 10(a) of the 1948 Act was amended so as to remove the stated acreage limitation. Miss.Laws 1950, Ch. 220, Sec. 3. This type of legislation is usually defined as a compulsory pooling statute, under which owners of small or irregularly shaped tracts can be required by the Board to develop their lands as a single drilling unit for conservation purposes. It is contrasted with a compulsory unitization statute, which applies ordinarily to joint operations on a large scale, such as those covering an entire oil or gas pool. Leslie Moses, Some Legal and Economic Aspects of Unit Operations of Oil Fields, 21 Tex.L.Rev. 961 (1943). The Board's order is based upon Sec. 10(a) as amended in 1950. It provides:

'When two or more separately owned tracts of land are embraced within an established drilling unit, the person owning the drilling rights therein and the rights to share in the production therefrom may validly agree to integrate their interests and to develop their lands as a drilling unit. Where, however, such persons have not agreed to integrate their interests, the board may, for the prevention of waste or to avoid the drilling of unnecessary wells require such persons to integrate their interests and to develop their lands as a drilling unit. All orders' requiring such pooling shall be made after notice and hearing, and shall be upon terms and conditions that are just and reasonable, and will afford to the owner of each tract the opportunity to recover or receive his just and equitable share of the oil and gas in the pool without unnecessary expense.

'The portion of the production allocated to the owner of each tract included in a drilling unit formed by a pooling order shall, when produced, be considered as if it had been produced from such tract by a well drilled thereon. In the event such pooling is required, the cost of development and operation of the pooled unit chargeable by the operator to the other interested owner or owners shall be limited to the actual expenditures required for such purpose, not in excess of what are reasonable, including a reasonable charge for supervision; provided, however, when production of oil or gas is not secured in paying quantities as a result of such forced unitization, the operator shall have no charge against the nonconsenting owner or owners. In the event of any dispute relative to such costs, the board shall determine the proper costs, after due notice to all interested parties and hearing thereon. Appeals may be taken from such determination as from any other order of the board.'

I.

The Gwinville Field is a large pool of gas under a considerable area of land in Jefferson Davis and Simpson Counties, Mississippi. On August 30, 1945, by Order No. 4-45, the State Oil and Gas Board, hereinafter usually referred to as Board, promulgated general rules governing the drilling and development of oil and gas wells. On August 11, 1947, in Order No. 1-47, the Board adopted additional rules for the Gwinville Field. On September 11, 1947, the Board adopted completely new rules for the drilling and operation of oil and gas wells throughout the State. However, these general state-wide rules expressly provided that they did not revoke any Special Field Rules, such as Order No. 1-47 of August 11, 1947, and that in the event of a conflict, the Special Field Rules should control. These rules all provided that each gas well in the state must be located on a tract of not less than 320 contiguous surface acres.

The foregoing rules were promulgated by the Board under the authority of Miss.Laws 1932, Chap. 117, and Laws of 1936, Chap. 305, being Code of 1942, Secs. 6132- 6179. Those statutes were repealed on May 9, 1948 by Chap. 256, Laws of 1948, but the latter act in Section 21 expressly provided that the prior orders and rules of the Board were to remain in effect until October 29, 1948. On that day in the Board adopted Order No. 18-48, which was applicable to all wells throughout the State and which repealed the order of September 11, 1947. On the same day the Board adopted Order No. 19-48 which repealed Order No. 1-47 of August 11, 1947. As to the questions here involved, the 1948 rules of the Board are identical to the old rules. All of them provide that each gas well must be located on a tract of not less than 320 contiguous surface acres.

On August 4, 1948 Superior Oil Company, and other lessees, holding oil and gas leases on all of the interests under all of the lands involved, entered into an agreement pooling their interests as lessees and providing for the development and operation of a 320-acre unit designated as Unit No. 33. On May 18, 1948, appellant, who was the sole owner of the leases covering all of the interests in the lands in proposed Unit No. 32, executed an instrument which was recorded in Jefferson Davis County named 'Designation of Gas and Gas Distillate Unit, Gwinville Field', being Unit No. 32.

On April 23 and May 13, 1948, appellant filed with the Board applications to drill gas wells on Units 32 and 33. These applications reflected the respective names of the proposed units. On April 28 and May 22, 1948, the Board issued permits to drill wells on these units to the Superior Oil Company. These permits as issued to Superior described the locations of the wells. The permit for the well on Unit 33 reflected that it would be on Unit 33, but the permit for the well on what is designated as Unit 32 did not reflect on its face the identity of that unit. On July 16 and on August 4, 1948, appellant, in compliance with Order No. 1-47, filed with the Board plats of Units Nos. 32 and 33 respectively.

The wells on Units 32 and 33 were commenced on May 33 and June 3, 1948, and apparently were completed as gas wells on August 1, and September 8, 1948, respectively. However, the Secretary of the Board testified that the well on Unit 32 was completed on June 29, but this difference in dates is not important. On September 20 and October 20, 1948, the Board executed orders authorizing the wells on these units to produce stated amounts of gas during the months of October and November, 1948. The allowables established were that proportion of the total demand for gas from the Gwinville Field which the number of acres in each of the units, 320 acres, bore to the total number of acres in the Gwinville Field. Thereafter and up to the time of this present suit and proceeding before the State Oil and Gas Board, which was begun on May 1, 1950, and which terminated with the Board's order of September 20, 1950, the Board established gas production allowables for each of these wells on these units to produce in the stated proportions. These allowables, authorized by orders of the Board for each of these months, identified the particular wells, and contained a column 'acreage assigned to well * * * 320 acres'. The allowable orders of the Board for January, February and March, 1950 expressly stated that 'the aforesaid allowables are based upon plats which have been submitted to and approved by the Mississippi State Oil and Gas Board.' These allowable orders identified each unit by number. On July 16 and March 23, 1948, appellant filed with the Board certificates that the leasehold interests in each unit had been committed to participate in the production from Units 32 and 33.

The gas wells on Units Nos. 32 and 33 have been producing gas since their completion on August 1 and September 8, 1948. The parties, lessees, to the joint operating agreement invested a considerable sum of money in the drilling of the well on Unit 33; and appellant, who held all of the leases on Unit 32 alone, made a similar investment in the well on Unit 32. These lessees and their lessors, in all more than 100 parties, have continuously from 1948 to date shared in the production from the unit wells on the basis that Units 32 and 33 had been established. At the time appellant filed its petition with the Board on May 1, 1950, asking the Board to integrate the interests of all of the parties in the gas underlying Units 32 and 33, the wells had been producing gas for nearly two years, and the gas produced from these units had been allocated and distributed each month to the separate tracts and owners comprising each unit in the proportion that the number of surface acres in each tract bears to the total number of surface acres in each unit. All of the lessors and mineral owners have been receiving their respective shares in such production, except the five appellees, who have refused to accept the monies which were tendered them by appellant, for reasons later stated.

In 1939 and 1940, the Superior Oil Company, appellant, had obtained oil and gas leases on a sizeable amount of acreage in that Field, including the land in question. The primary terms of most of these leases were for 10 years. The...