Tenneco Oil Co. v. El Paso Natural Gas Co.

• Decision Date: 17 July 1984
• Docket Number: No. 53201,53201
• Citation: 687 P.2d 1049,1984 OK 52
• Parties: TENNECO OIL COMPANY, a corporation, Appellee, v. EL PASO NATURAL GAS COMPANY, a corporation, Appellant.
• Court: Oklahoma Supreme Court

Page 1049

687 P.2d 1049

1984 OK 52

TENNECO OIL COMPANY, a corporation, Appellee, v. EL PASO NATURAL GAS COMPANY, a corporation, Appellant.

No. 53201.

Supreme Court of Oklahoma.

July 17, 1984.

Rehearing Denied Sept. 11, 1984.

As Corrected Sept. 13, 14 and

Oct. 10, 1984.

Appeal from the District of Roger Mills County; Charles M. Wilson, judge.

Appeal from order of the district court quieting title in petitioners against named defendant and adjudicating and declaring petitioner's rights and duties under an operator's agreement, executed subsequent to forced-pooling order, affecting common source of supply as issued by the Oklahoma Corporation Commission.

H.B. Watson, Jr., Richard K. Books, Watson, McKenzie & Moricoli, Oklahoma City, for appellee.

David T. Burleson, Rand C. Schmidt, El Paso, James M. Gaitis, Robert J. Emery, Emery, McCandless, Gaitis, Bruehl & Gerstandt, P.C., Oklahoma City, for appellant, El Paso Natural Gas Co.

DOOLIN, Justice:

The cleavage within this Court, as demonstrated by this case, arises from deciding whether, after a forced-pooling order is issued by the Oklahoma Corporation Commission, the parties named as operator, and as electee or poolee, may contract between themselves to enlarge or otherwise define the terms set forth in the pooling order. Restated the question posed is this: may the interested parties to a forced-pooling order contract as to interests created, duties defined, terms of participation, operations, etc.?

We hold they may.

A majority of this Court believes that such a contract is permissible, while the minority takes the view that such a voluntary contract is impermissible, an usurpation, and an attack on the public policy (police power) exercised by the Commission. Those who espouse the permissibility of the operating agreement believe that the forum to decide the rights and duties of the pooling order and its offspring, the operating agreement, is the traditional law or District Courts of Oklahoma. The opposing view would fix the forum for deciding such controversy within the framework of the Corporation Commission. Both opinions agree that the statutory power to administer the "conservation act" is fixed in the Corporation Commission of Oklahoma, 52 O.S.1981, § 81 et seq. and 17 O.S.1981, § 52.

The Constitution of Oklahoma provides in Art. IX, § 19 that the Corporation Commission shall have the power and authority of a Court of Record; ¹ it may likewise punish for contempt, enforce its lawful orders, etc. Its power over oil and gas matters stems from statutory enactments (not mentioned in the Constitution) which of course must not be inconsistent with the constitutional provisions.

Without specifying, or further tracing the conservation act, suffice to say that the Corporation Commission is charged with enforcement of the conservation as to both oil and gas. ²

This case began as one sounding in equity, a quiet-title action, filed by Tenneco Oil Company, a corporation (Tenneco), against El Paso Natural Gas Company, a corporation (El Paso), praying that the District Court of Roger Mills County, Oklahoma quiet Tenneco's interest in certain oil and gas leases covering the party's interest in Section 6, TWN 13 N, RN 24 West I.M., Roger Mills County, Oklahoma. Tenneco further asked for a decree judicially determining Tenneco's right to participate in the Prior to filing suit in December of 1976, the Corporation Commission, pursuant to 52 O.S.1971, § 87.1, had established a drilling and spacing unit of 640 acres for gas and gas condensate from certain common sources of supply underlying Section 6, TWN 13 N, RN 24 West I.M., Roger Mills County. Thereafter the Corporation Commission force-pooled the interest of Tenneco and El Paso by order dated May 9, 1977. Title 52 O.S.1971, § 87.1(d) [presently 52 O.S.1981, § 87.1(e) ] provides in part:

operation of a producing well, together with other injunctive relief. ³

"... When two or more separately owned tracts of land are embraced within an established spacing unit, or where there are undivided interests separately owned, or both such separately owned tracts and undivided interests embraced within such established spacing unit, the owners thereof may validly pool their interests and develop their lands as a unit. Where, however, such owners have not agreed to pool their interests and where one such separate owner has drilled or proposes to drill a well on said unit to the common source of supply, the Commission, to avoid the drilling of unnecessary wells, or to protect correlative rights, shall, upon a proper application therefor and a hearing thereon, require such owners to pool and develop their lands in the spacing unit as a unit ..." (Emphasis supplied).

Both Tenneco and El Paso sought to be named the unit operator.

By the order described aforesaid, Tenneco was designated as operator of the unit; however, if Tenneco did not commence operations for drilling within 90 days from May 9, 1977, then El Paso should become the operator. Paragraph 9, infra.

The forced-pooling order further provided for payment of a cash bonus of $175.00 per acre plus an overriding royalty of 1/16 of 7/8 on oil and 1/8 of 7/8 on gas if a party did not participate. ⁴

Paragraph 9 of the pooling order provided:

"That in the event a party has elected to participate in the drilling of the unit well and has paid to Tenneco Oil Company in cash (or has furnished Tenneco Oil Company evidence of such party's ability to pay) its pro rata share of the cost of drilling the unit well, and if Tenneco Oil Company fails to commence operations for drilling the unit well within 90 days from the date of this order, then Tenneco Oil Company shall immediately pay over to El Paso Natural Gas Company such cash payments, or deliver to El Paso Natural Gas Company the evidence of such party's ability to pay. In the event El Paso Natural Gas Company becomes unit operator, Tenneco Oil Company shall have 15 days (beginning with the first day when El Paso Natural Gas Company becomes the operator) to elect whether to participate in the working interest of the proposed well and shall have five days thereafter within which to pay to El Paso Natural Gas Company (or furnish to El Paso Natural Gas Company satisfactory evidence of its ability to pay) its proportionate part of the cost thereof."

Tenneco was unable to meet the drilling commencement deadline of 90 days and notified El Paso on July 21, 1977, or July 22, 1977, ⁵ by telephone, later confirmed by letter dated July 27, 1977.

Chronologically the next step was that El Paso sent Tenneco an executed operator's agreement on August 11, 1977. Tenneco did not immediately sign the operator's agreement but did so on September 6, 1977, and mailed same to El Paso who received it on September 7, 1977.

Meanwhile El Paso, by letter dated August 31, 1977, tendered the cash bonus to Tenneco under the Corporation Commission forced-pooling order, which Tenneco returned. Thereafter Tenneco brought its action against El Paso on November 8, 1977 ⁶ in the District Court of Roger Mills County.

The trial court on November 12, 1978 granted judgment in favor of Tenneco, finding the operating agreement modified the forced-pooling order of the Corporation Commission and holding that Tenneco was entitled to its proportional production based on its ownership of leases within the 640 acre spacing. In due course a timely appeal was effected by El Paso and by an opinion rendered October 19, 1982, ⁷ we reversed the Court of Appeals with directions to dismiss Tenneco's cause of action for want of subject-matter jurisdiction.

By this opinion granting rehearing, we vacate the previous opinion of this Court and affirm the action of the trial court.

There can be little doubt that questions as to jurisdiction may be raised at any time by the parties and by the Court on its own motion. ⁸ The same rule applies to orders and decrees of the Oklahoma Corporation Commission. ⁹ In Dickson v. Dickson, 637 P.2d 110 (Okla.1981) we cited Hawkins v. Hurst, 467 P.2d 159 (Okla.1970) holding the Supreme Court of Oklahoma must inquire into its own jurisdiction as well as the jurisdiction of the trial court, whether or not raised by a party.

We are critical and condemn the use of the word "modify," a derivative, or synonym thereof, as used in the trial court's journal entry of judgment when describing the effect of the operator's agreement on the order of the Commission within the purpose of the conservation act. The purpose of 87 O.S.1981, § 81 et seq. is contained in the title given to the chapter in its codification. It is codified as an act whose purpose is the conservation of oil and gas and the duty fixed thereby is entrusted to the Corporation Commission. We have held many times that the Commission is a constitutional body possessed of executive, legislative and judicial powers. The statutes provide that the Commission shall prohibit and control waste and shall protect correlative rights. The rationale behind such duty is that the Corporation Commission shall look after the rights of the body politic.

At the risk of oversimplification, we hold the enactments for the conservation of oil and gas are public in nature and that the spacing order, the pooling order, and the order fixing allowables, to name but a few of its functions, are within the realm of the public rights to be protected. Thus, the spacing order sets the stage for development and guards the public interest in developing an orderly and judicious drilling program. It is aimed at protecting the interest of all, by the prohibitions against waste. The forced-pooling order, among other things, represents the interest of consumers and mineral interests and disallows the "dog in the manger" attitude, which would deny economic development.

In an economy of scarcity, a body such as Oklahoma Corporation Commission serves well.

This is not to say that the rights to produce the designated...