Ward v. Corporation Commission

• Decision Date: 19 September 1972
• Docket Number: Nos. 44894 and 45043,s. 44894 and 45043
• Citation: 501 P.2d 503
• Parties: L. O. WARD et al., Appellants, v. CORPORATION COMMISSION of the State of Oklahoma, and Tenneco Oil Company, Appellees.
• Court: Oklahoma Supreme Court

Page 503

501 P.2d 503

L. O. WARD et al., Appellants, v. CORPORATION COMMISSION of the State of Oklahoma, and Tenneco Oil Company, Appellees.

Nos. 44894 and 45043.

Supreme Court of Oklahoma.

Sept. 19, 1972.

Walker & Watson, by Barth P. Walker, Oklahoma City, for appellees.

DAVISON, Vice Chief Justice:

We have heretofore answered many questions that have been presented by the application of 52 O.S.1961 § 87.1 (Supp.1963) and its statutory predecessors which delegated to the Corporation Commission (Commission) the power and imposed the duty to prevent or minimize waste and drainage within a 'common source of supply' as therein defined, of oil or gas or of oil and gas as therein defined.

To accomplish this statutory purpose, our Legislature designed procedures to prevent the drilling of unnecessary wells. Stated simply § 87.1 authorizes the Commission to establish well spacing (drilling) units over what appears to be a common source of supply, prescribe the drilling location within the unit and prohibit, with restricted exception, the drilling of any well on the unit, except the prescribed unit well at the prescribed location.

The question presented is whether nondrilling oil and gas lessees and owners within the unit share in the unit production as of the date the Commission order established the spacing (drilling) unit. As it will appear later, the terms 'spacing order and pooling order' are confused in § 87.1, and the purpose of each order will become clear as we discern what each order is designed to accomplish and isolate the legal consequences of each order.

The parties do not agree entirely concerning what facts are relevant and material to the question we are required to answer.

We first recite verbatim the statement of the case by the Appellants, L. O. Ward and his associates:

'L. O. Ward and his associates Jack Choate, Carl E. Gungoll, Henry Gungoll, James Gungoll, Linda Gungoll and Roy W. Reed, who will jointly hereinafter be referred to as 'Ward,' own the oil and gas leasehold estate covering all of the NE 1/4 of Section 34, Township 20 North, Range 10 West, Major County, Oklahoma, and 140 acres in the SW 1/4 of the Section, and 15 acres in the SE 1/4. Tenneco Oil Company owned all of the NW 1/4, and 20 acres in the SW 1/4, and 145 acres in the SE 1/4 of the Section. The percentage ownership of the Section is owned 45 per cent by Ward and 55 per cent by Tenneco.

Ward commenced operations for the drilling of the No. 1 Freed well in the NE 1/4 of Section 34 on or about December 5, 1968, and completed the well as an extremely fine producer in the Hunton formation on or about January 7, 1969, long before the area was spaced into drilling and spacing units.

The chronological order of facts that this Court will need to understand concerning the events leading to this controversy are as follows:

'1. As suggested above, the well was commenced in December 1968, and completed on January 7, 1969;

2. The area was unspaced in any formation when the well was commenced and completed;

3. On February 4, 1969, Tenneco filed an Application CD No. 29,982, seeking 640-acre Hunton and Mississippi spacing. On March 11, 1969, Ward filed an Application, CD No. 30,197, seeking 160-acre spacing for the Hunton formation;

4. The two applications were combined for hearing, and on June 26, 1969, the Commission issued its Order No. 75,137 in the combined hearings, which fixed 640-acre drilling and spacing units in the Hunton and Mississippi common sources of supply;

5. Ward appealed this Order to the Supreme Court vigorously contending that all of Section 34 was not underlain by productive Hunton formation, and that, even if it was, the economics were such that four wells could economically be drilled in the Section, and that sufficient additional reserves of condensate from the Hunton formation would be recovered that would otherwise not be recovered if only one well was drilled, thus creating waste. Irrespective of Ward's position, this Court affirmed the Order of the Corporation on June 9, 1970 (470 P.2d 993);

6. On the 17th day of February, 1971, the Commission entered its Order No. 83,811, on the Application of Tenneco Oil Company force-pooling the owners of the leases in Section 34. The effect of this Order was to determine that the owners of all leases in Section 34 had a right to participate in the production from the Freed well previously drilled by Ward in the Section. On February 26, 1971, Tenneco filed a Motion for modification of Order No. 83,811 (the force-pooling Order), and on May 4, 1971, the Commission issued its Order No. 84,842, which provides in effect that Tenneco was entitled to participate in the production from the well from and after June 26, 1969, which is the date of the spacing order, contrary to the position of Ward that the right of Tenneco to participate in the well stems only from the date of the force-pooling Order No. 84,842, which is May 4, 1971.'

The following additional statement appears in Appellant's argument of his first proposition:

'During this interval of time (between January 26, 1969, the date of the spacing order and May 4, 1971, the date of the pooling order), approximately $100,000.00 of gas and condensate was sold from the well. Although Ward had completed the well in January of 1969, the well did not go on stream for a considerable period of time awaiting a favorable market. Ward could have produced the well upon completion, on or about January 7, 1969, until June 26, 1969, the date of the spacing order, and owned all of the production without question. This is a period in excess of five months, and Ward's testimony (R. 55), is that the well would have produced approximately $100,000.00 worth of products per month, or a gross production of in excess of $500,000.00, during this period of time. By waiting on a more favorable market Ward kept the well shut in, but did produce in excess of $100,000.00 worth of products during the period of time concerned with the issues in this case. * * *.'

Appellee, Tenneco Oil Company, says:

'The question in this case must be decided on these facts:

1. Plaintiffs in Error drilled a well on a quarter section of land for which no drilling and spacing unit had been established.

2. The well was completed as a well capable of producing gas and gas condensate from the Hunton common source of supply.

3. The Commission established a 640-acre drilling and spacing unit for said well and said common source of supply.

4. Plaintiffs in Error own about 45 per cent of the drilling and spacing unit area and Tenneco owns about 55 per cent thereof.

5. After the drilling and spacing unit was created Tenneco endeavored to pay its pro-rata share of the cost of the well and to participate in a like pro-rata share of the production from the well; Plaintiffs in Error refused to accept payment or to permit participation in such production.

6. Tenneco asked the Commission to determine its rights in the well; the Commission entered Order No. 83811 as amended by Order No. 84842 wherein it was found that Tenneco had the right, on paying its pro-rata share of the cost of the well, to participate in all production from the well from and after the date the drilling and spacing unit was established.'

This appeal is from the Order of the Commission No. 83811, as amended by Order No. 84842, holding that Appellee, Tenneco Oil Company, had the right, commencing on the date the applicable spacing order was established, upon paying its pro-rata share of the cost of the well, to participate in all production from the well drilled by Ward and associates on the NE 1/4 of Section 34, Twp. 20 N, Range 10 West, Major County, Oklahoma.

We find that Wood Oil Co. v. Corporation Commission, 205 Okl. 537, 239 P.2d 1023, held that the non-drilling owners of a divided interest (the owner of an undivided interest was not involved) in a spacing unit is entitled to share in the production from the unit well commencing on the date the Commission established the unit.

The antecedent facts as recited in the companion case of Wood Oil Company v. Corporation Commission, 205 Okl. 534, 239 P.2d 1021, follows: It was there revealed that on April 1, 1947, on an application by Sinclair Prairie Oil and Gas Company, the Commission extended the lines of the Wayne Pool, which then included the East half of Section 14, T5N, R2W, McClain County, to include among other lands the West Half of Section 14. Wood Oil had obtained production on December 21, 1946 from a well on the East ten acres of the Northeast Quarter of the Northwest Quarter of Section 14. The judgment in 239 P.2d 1021 affirmed the Commission Order of April 1, 1947, extending the boundaries of the Wayne Pool. The effect of the Order was to make the Wood well a unit well. Toklan in 239 P.2d 1023, by virtue of the Order of April 1, 1947, claimed the right to participate in the production from the unit well since the date of first production, December 21, 1946, rather than since the date of the extension of the spacing order April 1, 1947, which made the Wood Well a unit well. We reversed the Order of the Commission that sustained Toklan's claim, saying: 'To the extent the Order holds Wood Oil accountable to Toklan directly or indirectly for a share in...