Union Texas Petroleum, A Div. of Allied Chemical Corp. v. Corporation Com'n of State of Okl.

• Citation: 651 P.2d 652,1981 OK 86
• Decision Date: 21 July 1981
• Docket Number: No. 53181,53181
• Parties: UNION TEXAS PETROLEUM, A DIVISION OF ALLIED CHEMICAL CORPORATION; Champlin Petroleum Company; Atlantic Richfield Company; Amerada Hess Corporation; Eason Oil Company; Harper Oil Company; Singer-Fleischaker Oil Operating Company, Inc.; Oklahoma Natural Gas Company; Henry H. Gungoll Associates; L. O. Ward; Carl E. Gungoll; Woods Petroleum Corporation; Odessa Natural Corporation; Mack Oil Company; Okmar Oil Corporation and Ladd Petroleum Corporation, Appellants, v. The CORPORATION COMMISSION OF the STATE OF OKLAHOMA, Harvey W. Dierksen, et al., Appellees.
• Court: Supreme Court of Oklahoma

Page 652

651 P.2d 652

1981 OK 86

UNION TEXAS PETROLEUM, A DIVISION OF ALLIED CHEMICAL

CORPORATION; Champlin Petroleum Company; Atlantic

Richfield Company; Amerada Hess Corporation; Eason Oil

Company; Harper Oil Company; Singer-Fleischaker Oil

Operating Company, Inc.; Oklahoma Natural Gas Company;

Henry H. Gungoll Associates; L. O. Ward; Carl E. Gungoll;

Woods Petroleum Corporation; Odessa Natural Corporation;

Mack Oil Company; Okmar Oil Corporation and Ladd Petroleum

Corporation, Appellants, v. The CORPORATION COMMISSION OF the STATE OF OKLAHOMA, Harvey

W. Dierksen, et al., Appellees.

No. 53181.

Supreme Court of Oklahoma.

July 21, 1981.

Rehearing Denied March 8, 1982.

As Corrected March 9, 1982.

Dissenting Opinion March 9, 1982.

Appeal from the Corporation Commission of the State of Oklahoma.

In an application for an order modifying a previous drilling and spacing unit order of the Corporation Commission, applicant sought to de-space one-section units and respace those units at 160-acre parcels, alleging change of conditions and change of knowledge of conditions. The Corporation Commission granted the requested relief. Protestants allege such an order of modification is not supported by substantial evidence and was infirm by virtue of improper notice to certain parties, and they prosecute this appeal.

REVERSED IN PART; AFFIRMED IN PART.

C. Harold Thweatt of Crowe, Dunlevy, Thweatt, Swinford, Johnson & Burdick, Oklahoma City, for Union Texas Petroleum, A Div. of Allied Chemical Corp., and Champlin Petroleum Co.

Duncan W. Holt, Jr., Dallas, Tex., for Atlantic Richfield Co.

Wyn Dee Baker, Tulsa, for Amerada Hess Corp.

Robert J. Emery of Lytle, Soule & Emery, Oklahoma City, for Eason Oil Co.

Russell F. Thompson of Monnet, Hayes, Bullis, Thompson & Edwards, Oklahoma City, for Harper Oil Co. and Singer-Fleischaker Oil Operating Co., Inc.

John A. Gaberino, Jr. of Huffman, Arrington, Scheurich & Kihle, Tulsa, for Oklahoma Natural Gas Co.

Gordon F. Brown, Brown & Lockhart, Oklahoma City, for Henry H. Gungoll Associates, Wood Petroleum Corp., Odessa Natural Corp., Mack Oil Co., L. O. Ward, Okmar Oil Corp., Ladd Petroleum Corp. and Carl E. Gungoll.

H. B. Watson, Jr., Richard K. Books, Oklahoma City, for Tenneco Oil Co. and Union Oil Co. of Cal.

Harvey Cody, Conservation Atty., Oklahoma Corp. Com'n, Jan Eric Cartwright, Atty. Gen., Oklahoma City, for Corp. Com'n of the State of Okl.

Walker, Walker & Corbyn by Barth B. Walker, Oklahoma City, for Harvey W. Dierksen, et al.

HARGRAVE, Justice.

This is an appeal from Order No. 148243 of the Corporation Commission of the State of Oklahoma dated January 3, 1979. That order vacated eighty-eight 640-acre drilling and spacing units, and established 160-acre drilling and spacing units. One hundred eleven applicants joined in the application which produced this order, and in that application they alleged that the prior orders of the Corporation Commission would demonstrate that the Mississippian formation constituted a single common source of supply in the region covered by the application and that the prior orders clearly demonstrated that there had been substantial change of conditions or knowledge of conditions as to that common source of supply, and that in order to prevent waste and protect correlative rights, that change in knowledge of conditions required that the previously existing 640-acre drilling and spacing units be vacated and that drilling and spacing units be established which created 160-acre drilling and spacing units for the Mississippian.

The Mississippian formation underlying the area covered by this application is a gas producer which produces increasing amounts of oil as proportionate to total production along the southeastern portion of the area covered by the application. In that southeasterly portion there have been in the past a number of additional wells drilled on the basis of applications granted on an increased density basis by virtue of the oil production there had. The applicants sought to establish a change in knowledge of conditions underlying the land encompassed in the application and that that change in knowledge of conditions established that 640-acre Mississippian units were incapable of draining the entire formation in the area.

The appellants resisted the application to vacate the 640-acre spacing units and establish 160-acre drilling and spacing units, alleging there had been no substantial change in conditions and thus the application constituted a collateral attack on previous order of the Corporation Commission. Additionally, the appellants alleged that the Mississippian formation throughout this area is, in part, productive of oil as well as gas and the proper method to proceed upon that change in condition was by an order increasing the density of the drilling in the previously existing 640-acre units, noting that the spacing and respacing on proof of change of condition is contrary to the historical policy of the Commission which has been to increase density rather than vacate units and reestablish on the basis of smaller acreage. Appellants Tenneco Oil Company and Union Oil Company of California argue in their appeal that the subject order must be vacated because it was entered by the Corporation Commission outside of the regular pursuit of its authority. The basis of such a proposition is that the June 13, 1978 application of the appellee, which is the original application producing the order upon which this appeal is based, failed to list the appellants Tenneco and Union then owning interests in the area sought to be de-spaced, and that those two appellants had received no notice of the proceedings. Despite this lack of notice, Union and Tenneco made a special appearance before the Commission prior to the hearing on the order objecting to the jurisdiction of the Commission on that basis and requesting the application be dismissed. Argument was heard prior to the hearing on the merits and the motion to dismiss was denied by the Commission's order of July 7, 1978. This failure to properly serve Union and Tenneco allegedly resulted in a violation of the Commission's own rules and regulations and of the appellants' right to due process, under the line of cases arising out of Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950).

Appellants Union Texas Petroleum, a division of Allied Chemical Corporation, Champlin Petroleum Company, Atlantic Richfield Company, Amerada Hess Corporation, Eason Oil Company, Harper Oil Company, Singer-Fleischaker Oil Operating Company, Inc., Oklahoma Natural Gas Company, Henry H. Gungoll Associates, L. O. Ward, Carl E. Gungoll, Woods Petroleum Corporation, Odessa Natural Corporation, Mack Oil Company, Okmar Oil Corporation, and Ladd Petroleum Corporation, raise four propositions of error for disposition in their appeal. First, that there is no substantial evidence showing a change in conditions or knowledge of conditions which would authorize the Corporation Commission to vacate its prior 640-acre drilling and spacing unit order. The second point is that the decision of the Commission to destroy the 640-acre drilling and spacing units and thereupon establish 160-acre units is an arbitrary act which violates the vested rights of the owners of the oil and gas leases held by unit production and the vested rights of the royalty owners. Included in this point is the assertion that there is no evidence to support the Commission's choice from among the two statutory remedies of permitting increased density of drilling or vacation of the established drilling units and creation of smaller drilling and spacing units in their place. The third point made by these appellants is that the order fails to include some 640-acre drilling and spacing units in the same common source of supply, thereby violating the correlative rights of the owners. The fourth point made in this appeal by these appellants is that the applicants did not comply with the rules of the Commission and that proper response to these failures by the Commission should have been to dismiss the application upon motion made prior to commencement of the hearing.

The orders of the Corporation Commission amended by the order now on appeal start with an order establishing 640-acre drilling and spacing units for the Mississippian gas and gas condensate common source of supply within a 40 square mile area in Major and Garfield Counties dated June 22, 1962. As of that date, only two wells had been completed in the area. That order finds one well adequately drains 640 acres. A year and a half later, the Corporation Commission found in its Order No. 53477 that Sec. 26, T22N, R8W, comprising a 640-acre drilling and spacing unit, was in fact oil productive, and further found that three additional wells were necessary to drain that unit. Those wells were permitted by the order and were found necessary to effect drainage of the section, and to date, only two of the three authorized wells have been drilled, the latter of those two having been drilled in 1978. A later order found the Mississippian in this area to be a combination oil and gas reservoir. The Corporation Commission's Order No. 50337 established 640-acre drilling and spacing units for the Mississippian as gas and gas condensate common source of supply for a nine square mile area in Garfield County, located one mile from the area covered by Order 49133. The order now appealed from establishes as one common source of supply the area as covered in Order No. 49133 and Order No. 50337. The findings of the Corporation Commission incorporated in the now-appealed Order No. 148243 set forth the following:

When previous Order No. 49133 was issued only two wells had been drilled within the area. When Order No. 50337 was issued, only one well had been drilled within the covered area. Six hundred and forty acre drilling and spacing units were first...