Torch Operating Co. v. Railroad Com'n of Texas
| Decision Date | 31 August 1994 |
| Docket Number | No. 3-93-538-CV,3-93-538-CV |
| Citation | 894 S.W.2d 3 |
| Parties | 131 Oil & Gas Rep. 121 TORCH OPERATING COMPANY, Appellant, v. RAILROAD COMMISSION OF TEXAS and Goodrich Oil Company, Appellees. |
| Court | Texas Court of Appeals |
Glenn E. Johnson; Graves, Dougherty, Hearon & Moody, Austin, for appellant.
Dan Morales, Atty. Gen., Priscilla Hubenak, Asst. Atty. Gen., Austin, for Railroad Com'n of Tex.
William Osborn, Philip F. Patman; Patman & Osborn, Austin, for Goodrich Oil Co.
Before POWERS, ABOUSSIE and JONES, JJ.
Torch Operating Company appeals from a judgment of the district court affirming a final order of the Texas Railroad Commission in a contested case in which Goodrich Oil Company was a party and an intervenor in the district-court suit. We will reverse the district-court judgment and the Commission order and remand the contested case to the Commission.
After completing a discovery gas well and another gas well in the Bammel, North (6,100' Cockfield) Field in Harris County, Kilroy Oil Company of Texas applied to the Commission for a hearing to establish temporary field rules for the field. Goodrich held operating rights under leases in the same field, but apparently the leaseholds did not touch Kilroy's. Consequently Kilroy did not identify Goodrich as an operator to be notified of the requested hearing. See 16 Tex.Admin.Code § 3.43(b) (1994).
Before the Commission established the temporary field rules, Goodrich applied to the Commission for a permit to drill its first well in the field. Because no field rules were applicable at the time, Goodrich's application requested the permit on the basis of the "statewide" density and spacing requirements, namely one well upon 40 acres located not less than 467 feet from a lease line and not less than 1,200 feet from another well. See 16 Tex.Admin.Code §§ 3.5(a), .37, .38 (1994). A short time later, the Commission established the temporary field rules requested by Kilroy, setting density and spacing requirements at one well per 640 acres, located not less than 1,867 feet from a lease line and not less than 3,735 feet from another well. Ten days later the Commission nevertheless issued a permit to Goodrich allowing it to drill under the "statewide" spacing requirements that authorized a much greater density of wells with lesser spacing minimums. Goodrich amended its application a few months later to change the surface site of the well it intended to drill. The Commission approved the amended application about twelve days later, based again on the "statewide" spacing rules. Goodrich completed its well. The Commission, however, refused to approve the well and declined to assign it an allowable because its location violated the spacing and density requirements of the recently established temporary field rules.
A few months later, Torch succeeded Kilroy as operator under the leases held previously by Kilroy. Torch discovered that Goodrich was producing gas without an assigned allowable. Torch's resulting complaint to the Commission initiated a contested case heard by the agency March 6, 1992. On May 18, 1992, the Commission ordered that the temporary field rules be made permanent. On November 18, 1992, the Commission issued its final order deciding the contested case initiated by Torch's complaint against Goodrich.
The Commission's final order rests upon findings of fact and conclusions of law which may be summarized as follows:
1. Goodrich's leasehold fell within the 673.211-acre pooled unit recorded by Kilroy, which failed to file with the Commission a report of the pooled unit.
2. Goodrich did not receive notice of Kilroy's application to establish temporary field rules for the Bammel, North (6,100' Cockfield) Field, nor did Goodrich appear at the hearing on such application.
3. When Goodrich filed its application for a drilling permit, the company had no notice that the Commission had established temporary field rules.
4. The Commission's rules, properly construed, required that Goodrich receive notice of Kilroy's application for a hearing to establish temporary field rules because Goodrich was a person "affected" by the application.
5. The temporary field rules were therefore "void as to Goodrich Oil Company for lack of notice."
6. The Goodrich well was, moreover, "a legally drilled and located well and is entitled to an assignment of an allowable from the date its proper documentation was filed with the Commission."
7. "The Goodrich well should be entitled to make up production, if capable, for the period in which it was shut-in."
The effect of the Commission's final order is this: two different sets of density and spacing requirements were applied to the same field, the Bammel, North (6,100' Cockfield) Field. It is obvious and conceded by Goodrich and the Commission that: (1) the Commission's decision does not rest upon the prevention of waste or the protection of correlative rights, but rather upon Goodrich's want of notice and the Commission's resulting conclusion that the field rules procured by Kilroy were "void as to Goodrich"; and (2) the final order we now review discriminates on its face against Torch by allowing Goodrich a much greater well density and closer spacing of wells, leaving the issue to be whether the discrimination is lawful or unlawful.
"The purposes of statutes and administrative orders fixing the location of wells with respect to property lines and other wells are to protect the rights of land or mineral owners by preventing net drainage between tracts, to prevent economic waste resulting from the drilling of unnecessary wells and to prevent physical waste which may be incident to close drilling." 1 W.L. Summers, The Law of Oil and Gas...
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Railroad Com'n of Texas v. Torch Operating Co.
...could not exempt Goodrich from the temporary field rules except on specific statutory factors that the Commission had not addressed. 894 S.W.2d 3. Because the Commission's decision was consistent with its statutory authority and was supported by substantial evidence, we reverse the judgment......