V-F Petroleum, Inc. v. A.K. Guthrie Operating Co.

• Decision Date: 30 May 1990
• Docket Number: No. 3-88-057-CV,V-F,3-88-057-CV
• Citation: 792 S.W.2d 508
• Parties: PETROLEUM, INC., et al., Appellants, v. A.K. GUTHRIE OPERATING COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 508

792 S.W.2d 508

V-F PETROLEUM, INC., et al., Appellants, v. A.K. GUTHRIE OPERATING COMPANY, Appellee.

No. 3-88-057-CV.

Court of Appeals of Texas Austin.

May 30, 1990.

Paul Herrmann, McElroy, Williams & Sullivan, Austin, for V-F Petroleum, Inc.

Jim Mattox, Atty. Gen., Jose Manuel Rangel, Asst. Atty. Gen., Austin, for The R.R. Comm'n of Texas.

Carroll Martin, Scott, Douglass & Luton, Austin, for appellee.

Before POWERS, GAMMAGE and ABOUSSIE, JJ.

OPINION

GAMMAGE, Justice.

Appellants, V-F Petroleum, Inc., and the Railroad Commission of Texas, appeal from a judgment of the district court of Travis County that reversed an order of the Commission and remanded the proceeding to the agency. By its order, the Commission denied the application of appellee A.K. Guthrie Operating Company ("Guthrie") for an amendment to the field rules of the Sara-Mag (Canyon Reef) Field. We will reverse the judgment of the district court.

In 1954, the Commission adopted for the Sara-Mag (Canyon Reef) Field an allocation formula based fifty percent upon surface acreage and fifty percent upon the number of wells producing ("50-50 allocation formula"). An allocation formula is the means the Commission uses to prorate oil production among wells in a field. A 50-50 allocation formula was common in field rules promulgated before 1961 and favored production from small tracts. See generally Railroad Comm'n v. Humble Oil & Refining Co., 193 S.W.2d 824 (Tex.Civ.App.1946, writ ref'd n.r.e.), aff'd, 331 U.S. 791, 67 S.Ct. 1523, 91 L.Ed. 1820 (1947); 2 Smith & Weaver, Texas Law of Oil and Gas § 10.3(D) (1989).

In March 1982, V-F Petroleum's predecessor in interest filed an application requesting a permit to drill a well on a substandard-sized tract within the field. Texas Railroad Comm'n, 16 Tex.Admin. Code § 3.37 (West March 1, 1990) ("Rule 37"). Guthrie protested this request for a Rule 37 exception and filed an application to amend the field allocation formula to a one-hundred percent acreage formula. Guthrie owns land on three sides of the 2.5-acre tract in which V-F Petroleum holds an interest and operates eight of the ten wells in the field. After a hearing, the Commission granted V-F Petroleum a Rule 37 exception allowing it to drill on its tract.

Shortly thereafter, the Commission held a hearing on Guthrie's application to amend the allocation formula in which V-F Petroleum intervened. The Commission denied the application on the basis that the requested allocation formula would effectively disallow a well on the V-F Petroleum tract and that V-F Petroleum had been denied an opportunity to pool. Guthrie filed a petition for judicial review of the order in the district court of Travis County. Tex.Rev.Civ.Stat.Ann. art. 6252-13a, § 19 (Supp.1990). On August 2, 1983, the district court reversed the order and remanded the proceeding to the agency. In June 1984, the Commission reopened the hearing and, after receiving additional evidence, again denied Guthrie's application to amend the allocation formula.

Guthrie then filed a second petition for judicial review in district court. The district court reversed the agency order on the basis that the 50-50 allocation formula was "illegal" because it used a per-well factor in conflict with the holdings in Railroad Comm'n v. Shell Oil Co., 380 S.W.2d 556 (Tex.1964); Halbouty v. Railroad Comm'n, 163 Tex. 417, 357 S.W.2d 364 (1962); Atlantic Refining Co. v. Railroad Comm'n, 162 Tex. 274, 346 S.W.2d 801 (1961). On appeal, this Court determined that these cases did not preclude the Commission's use of per-well factor, reversed the district court judgment, and remanded the cause for consideration of the parties' substantial evidence points. Railroad Comm'n v. A.K. Guthrie Operating Co., 742 S.W.2d 86 (Tex.App.1987, no writ).

On remand, the district court entered judgment reversing the Commission's order because it was not supported by substantial evidence and again remanded the proceeding to the agency. The court concluded further that "the present allocation formula in the Sara Mag ... Field is illegal and has been illegal since this Court's final judgment of August 2, 1983 ... for lack of substantial evidence." This judgment underlies the appeal now before this Court.

We first note that, when a case is remanded to the district court with instructions, that court's authority is limited to trying only those issues specified in the appellate court mandate. Texacally Joint Venture v. King, 719 S.W.2d 652 (Tex.App.1986, writ ref'd n.r.e.); Humble Oil & Refining Co. v. Kishi, 299 S.W. 687, 689 (Tex.Civ.App.1927, writ ref'd). In the instant cause, this Court's opinion and mandate limited the district court to a determination whether the Commission's order was reasonably supported by substantial evidence. A.K. Guthrie Operating Co., 742 S.W.2d at 88. Furthermore, our determination that the Commission order was not affected by an error of law as to the use of a per-well factor is the law of the case. See Texacally Joint Venture, 719 S.W.2d at 653; Miller v. Winn, 28 S.W.2d 578 (Tex.Civ.App.1930, writ ref'd).

In their first points of error, appellants contend that the district court erred in concluding that the Commission's order was not supported by substantial evidence. Texas Rev.Civ.Stat.Ann. art. 6252-13a, § 19(e)(5) (Supp.1990) authorizes a reviewing court to test an agency's findings, inferences, conclusions, and decisions to determine whether they are reasonably supported by substantial evidence in view of the reliable and probative evidence in the record as a whole. Although substantial evidence is more than a mere scintilla, the evidence in the record may preponderate against the decision of the agency and nevertheless amount to substantial evidence. The true test is not whether the agency reached the correct conclusion, but whether some reasonable basis exists in the record for the agency's action. Texas Health Facilities Comm'n v. Charter Medical-Dallas, Inc., 665 S.W.2d 446 (Tex.1984); see Trapp v. Shell Oil Co., 145 Tex. 323, 198 S.W.2d 424 (1946). The agency's action, therefore, will be sustained if the evidence is such that reasonable minds could have reached the conclusion that the agency must have reached in order to justify its action. Charter Medical, 665 S.W.2d at 453; Suburban Utility Corp. v. Public Utility Comm'n of Texas, 652 S.W.2d 358, 364 (Tex.1983).

In its motion for rehearing in the Commission and in its first amended petition in district court, Guthrie asserted that the Commission's findings of fact ten, eleven, and thirteen through fifteen; and conclusions of law five, eight, and nine were not supported by substantial evidence. Accordingly, appellants here argue that these findings and conclusions are supported by substantial evidence. See Suburban Utility, 652 S.W.2d at 365; Purolator Armored, Inc. v. Railroad Comm'n, 662 S.W.2d 709, 714 (Tex.App.1983, no writ) (cannot raise on appeal argument not raised in motion for rehearing).

Finding of fact eleven states:

No opportunity is available to the owners of the 2.5 acres to pool the tract with any of the surrounding units.

a. Guthrie twice has indicated an affirmative disinclination to pool the 2.5 acres.

b. The discovery date for the field precedes the date of the Mineral Interest Pooling Act.

Conclusion of law five states:

Given the inability of the [V-F Petroleum] tract owners to pool their acreage either voluntarily or pursuant to the provisions of the Mineral Interest Pooling Act, a well on the 2.5 acre tract is necessary if they are to have a fair chance to recover their fair share of the Sara-Mag (Canyon Reef) Field.

The Mineral Interest Pooling Act ("MIPA"), Tex.Nat.Res. Code Ann §§ 102.001 et seq. (1978), permits the Commission to order mineral owners whose land shares a common reservoir to pool their interests to prevent unnecessary drilling, to protect correlative rights, or to prevent waste. MIPA § 102.011; Railroad Comm'n v. Broussard, 755 S.W.2d 951, 952 (Tex.App.1988, writ denied); see Superior Oil Co. v. Railroad Comm'n, 519 S.W.2d 479 (Tex.Civ.App.1975, writ ref'd n.r.e.). The Act's provisions do not apply to any reservoir discovered and produced before March 8, 1961. MIPA § 102.003. The reservoir here was discovered in 1954 and six wells developed during 1954 and 1955. Clearly, the provisions of the MIPA do not apply to this reservoir.

In regard to pooling generally, Mr. E.E. Runyan ¹ testified that he had twice contacted Mr. Guthrie to discuss the possibility of pooling and that each time Guthrie stated that "he could not possibly take [V-F Petroleum] into the well" and that there was no basis for negotiations on pooling. As stated previously, Guthrie owns tracts on three sides of V-F...