Trout v. Wyoming Oil and Gas Conservation Com'n

• Decision Date: 18 June 1986
• Docket Number: No. 85-280,85-280
• Citation: 721 P.2d 1047
• Parties: Kye TROUT, Jr., Appellant (Petitioner), v. WYOMING OIL AND GAS CONSERVATION COMMISSION, Appellee, (Respondent), Mitchell Energy Corporation, Appellee (Intervenor).
• Court: Wyoming Supreme Court

Page 1047

721 P.2d 1047

Kye TROUT, Jr., Appellant (Petitioner), v. WYOMING OIL AND GAS CONSERVATION COMMISSION, Appellee, (Respondent) Mitchell Energy Corporation, Appellee (Intervenor).

No. 85-280.

Supreme Court of Wyoming.

June 18, 1986.

Harold E. Meier of Schwartz, Bon, McCrary & Walker, Casper, for appellant.

Karen A. Byrne, Asst. Atty. Gen., Casper, for appellee Wyoming Oil and Gas Conservation Com'n.

Houston G. Williams of Williams, Porter, Day & Neville, P.C., Casper, for appellee Mitchell Energy Corp.

Before THOMAS, C.J., and BROWN, CARDINE, URBIGKIT and MACY, JJ.

BROWN, Justice.

By an order dated August 16, 1985, and a nunc pro tunc order dated September 1, 1985, the Wyoming Oil and Gas Conservation Commission (hereinafter Commission) approved a plan of unitized secondary recovery operations (unitization) of the Teapot Formation underlying the Mikes Draw unit area. Appellant appeals the unitization plan approved by the Commission. This case was certified by the district court to the Wyoming Supreme Court according to Rule 12.09, Wyoming Rules of Appellate Procedure.

The issues on appeal urged by appellant are:

"1. Are the material findings of the Commission as set forth in the order supported by substantial evidence?

"2. May the Wyoming Oil and Gas Conservation Commission approve a unit formula without evidence before it that the proposed formula protects correlative rights or allocates oil and gas in an equitable manner?

"3. Is the decision of the Wyoming Oil and Gas Conservation Commission arbitrary, capricious and abuse of discretion, or otherwise not in accordance with the law?"

We will affirm.

The Teapot Formation is located in Converse County north of Douglas. After meetings and discussions among the working interest owners concerning unitization, Intervenor, Mitchell Energy Corporation, proposed a Teapot Unit approximately 8.5 miles long by 2.8 miles wide covering approximately 7,385 acres. The appellant, Kye Trout, Jr., is the owner of working interests in leases in three wells located in the proposed unit. Mitchell Energy Corporation owns thirty-five percent of the interest in the unit area.

Counsel for appellant stated that they were not opposed to the unitization and were only opposed to the allocation formula. Appellant's witness, Guy Ausmus, a petroleum engineer, testified that they strongly supported the unit because they did not believe in waste, and if they were to stay out of the unit, that action would constitute waste. This representation by appellant's counsel was apparently considered by the Commission to be a stipulation that unitization would prevent waste. In any event, waste was not an issue before the Commission.

Before the Commission hearing on August 13, 1985, the working interest owners (operators) manifested an interest in unitization, and a technical committee was formed in January 1982 to study its feasibility. After its organization, additional meetings were held throughout the year, resulting in the technical committee report of July 1983. The operators had discussed possible formulas, including a formula proposed by appellant. The operators with interests in wells down the middle of the field would not accept the original oil-in- In December of 1983, there was a meeting to vote on the formula for allocating unit production to the various tracts. Five different votes were taken. At this meeting a formula proposed by appellant, relying on oil-in-place as a significant factor was rejected. With respect to the Trout formula, Rob Pawlik, a petroleum-reservoir engineer, testified at the Commission hearing that this formula had no chance of receiving the requisite approval of the unit members. Appellant's proposed formula would yield more oil to him, and such oil would have to be taken from the other interest owners. Mr. Pawlik also stated that the formulas were thoroughly discussed before the meeting in December 1983, at which time the votes were taken, and he stated further that by the time of that meeting, the acceptable formula had been narrowed down by the parties and that this was the reason for only five votes. At the close of the meeting a large majority of the operators had substantially agreed on a formula.

place and pore volume parameters favored by appellant, because they did not believe this oil to be recoverable.

It was determined at the Commission hearing that 82.39 percent of the operators and 93.06 percent of the royalty interest owners indicated voluntary joinder of the unit proposed by Mitchell Energy Corporation. After the hearing, the unit formula earlier favored by the operators was confirmed by the Commission, allocating unitization production based on three parameters or factors of varying weight: ¹

Although appellant lists three issues, his appeal is essentially a sufficiency-of-the-evidence argument. Appellant summarized his argument by stating that:

"There was no substantial evidence to support the Commission's findings. The statements of the commissioners at the close of the hearing contradict the findings placed in the order.

"The Commission erred in that there was no evidence whatsoever as to the effect of the formula on correlative rights or that the formula allocated oil and gas in an equitable manner. The Commission did not take into account the effect on correlative rights or the equitable distribution of oil in making its decision.

"The Commission's decision was arbitrary and capricious in that it was based upon a threat from the intervenor, Mitchell Energy Corporation, that it would not produce oil unless its formula were approved.

"The Commission erred in approving a 7,000 acre unit when the evidence was that the operator would only operate a small pilot project."

The rules for reviewing a decision of an administrative agency are well known. Section 16-3-114(c), W.S.1977 (October 1982 Replacement), as amended, provides:

"(c) To the extent necessary to make a decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. In making the following determinations, the court shall review the whole record or those parts of it cited by a party and due account shall be taken of the rule of prejudicial error. The reviewing court shall:

"(i) Compel agency action unlawfully withheld or unreasonably delayed; and

"(ii) Hold unlawful and set aside agency action, findings and conclusions found to be:

"(A) Arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law "(B) Contrary to constitutional right, power, privilege or immunity;

"(C) In excess of statutory jurisdiction, authority or limitations or lacking statutory right;

"(D) Without observance of procedure required by law; or

"(E) Unsupported by substantial evidence in a case reviewed on the record of an agency hearing provided by statute."

In Board of Trustees of School District No. 4, Big Horn County v. Colwell, Wyo., 611 P.2d 427, 428-429 (1980), we said:

"For the purpose of reviewing the propriety of the district court's action, we will review the agency action as though the appeal were directly to this court from the agency. We are governed by the same rules of review as was the district court. [Citations.]

"Therefore, we will not substitute our judgment for that of the agency. * * *

" * * * * *

" ' * * * Under this standard [§ 16-3-114(c), W.S.1977 (October 1982 Replacement) ], we do not examine the record only to determine if there is substantial evidence to support the Board's decision, but we must also examine the conflicting evidence to determine if the Board could reasonably have made its findings and order upon all of the evidence before it. * * * "

We examine the entire record to determine if there is substantial evidence to support an agency's findings. If the agency's decision is supported by substantial evidence, we cannot properly substitute our judgment for that of the agency, and must uphold the findings on appeal. Mountain Fuel Supply v. Wyoming Public Service Commission, Wyo., 662 P.2d 878 (1983). Substantial evidence is relevant evidence which a reasonable mind might accept in support of the conclusions of the agency. It is more than a scintilla of evidence. Kloefkorn-Ballard Construction and Development, Inc. v. North Big Horn Hospital, Wyo., 683 P.2d 656 (1984); Brasel & Simms Construction Co., Inc. v. State Highway Commission of Wyoming, Wyo., 655 P.2d 265 (1982); and Wyoming State Department of Education v. Barber, Wyo., 649 P.2d 681 (1982).

In his statement of the issue, appellant claims the Commission's decision is contrary to law and not supported by substantial evidence. He does not allege the Commission acted in excess of its jurisdiction, or that it failed to follow the required procedures.

The Commission made findings of fact and conclusions of law in support of its order. Appellant's principal contention is that the evidence was insufficient to support finding Nos. 15, 16, and 17, which state:

"15. Kye Trout (Trout) appeared to protest the application considered herein. Trout's concern is that his leases, which were acquired in 1983, did not receive equity in the participation formula which is based 47.5 percent on the last six months' rate, 47.5 percent on remaining proved developed producing reserves, and five percent (5%) on the volume of original oil-in-place. The Commission finds that the proposed formula does allocate oil and gas in a just and equitable manner to each separately owned tract so far as can be practically determined; that the unitized operation will prevent waste, will protect correlative rights and will substantially increase the amount of produced oil and gas; and that the value of the additional reserves is much greater than the investments required to produce the additional reserves. The operator, Mitchell Energy, had...