Case Title: Anschutz Corp. v. Wyoming Oil and Gas Conservation Com'n

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1996-09-16T00:00:00Z

Document:
Anschutz Corp. v. Wyoming Oil and Gas Conservation Com'n1996 WY 121923 P.2d 751Case Number: 95-279Decided: 09/16/1996Supreme Court of Wyoming
The 
ANSCHUTZ CORPORATION,

Appellant 
(Petitioner),

v.

The WYOMING OIL AND GAS 
CONSERVATION COMMISSION; 

and Union Pacific 
Resources Company, 

Appellees 
(Respondents).

Appeal from District 
Court, Natrona County, Dan Spangler, J.

Neil J. Short, 
Casper, for appellant petitioner The Anschutz Corporation.

William U. Hill, 
Attorney General; Roberta L. Rinegar, Assistant Attorney General, for 
appellee respondent Wyoming Oil and Gas Conservation Commission. 

Jack D. Palma, 
II, P.C., and Lynnette J. Boomgaarden of Holland & Hart, Cheyenne, for 
appellee respondent Union Pacific Resources Company.

Before 
GOLDEN, C.J., and THOMAS, MACY, TAYLOR,* and LEHMAN, 
JJ.

* Chief Justice effective 
July 1, 1996.

GOLDEN, Justice.

[¶1]      The Anschutz 
Corporation (Anschutz) appeals from the Wyoming Oil and Gas Conservation 
Commission's (Commission) compulsory pooling order entered in Docket 183-95, 
pooling Anschutz's non-consenting interest with all consenting interests in the 
proposed UPRC 11-3 well in the Yellow Creek Field. We affirm.

ISSUES

[¶2]      Appellant 
Anschutz presents the following issues:

1.         
Whether the force pooling order entered in Docket No. 183-95 violated the 
correlative rights of the Anschutz Corporation.

2.         
Whether the force pooling order entered in Docket No. 183-95 is fatally 
defective because it is based upon a "temporary" spacing order which does not 
honor the best available scientific data and thus cannot support a force pooling 
order.

3.         
Whether findings of fact nos. 12 and 13 in the order in Docket No. 183-95 
regarding industry practice and procedure are supported by a rational basis 
found in the record and by a conscious and explicit statement of the underlying 
facts supporting the findings.

4.         
Whether the order entered in Docket No. 191-80 as reviewed and continued 
by a series of orders most recently embodied in Docket No. 122-95 presented a 
justiciable issue and controversy that was ripe for determination at any time 
prior to the filing of the UPRC application for force pooling on May 18, 
1995.

[¶3]      In its brief of 
Appellee, the Commission presents the issues as follows:

I.          
Whether the Wyoming Oil and Gas Conservation Commission order to force 
pool Anschutz' interests in the Phosphoria and Weber formations in an 
established drilling and spacing unit conforms with law and is supported by 
substantial evidence.

II.          
Whether Appellant, Anschutz Corporation, is estopped from contesting the 
Commission's findings, conclusions and order.

[¶4]      Finally, Appellee 
Union Pacific Resources Company (UPRC), the interest owner applying for the 
force pooling order, states the issues as:

1.         
Whether the Wyoming Oil and Gas Conservation Commission's ("Commission" 
or "WOGCC") Order in Docket No. 183-95 ("compulsory pooling order") is within 
that agency's statutory authority and consistent with applicable law. [footnote 
omitted]

a.         
Whether the WOGCC's compulsory pooling order protects correlative 
rights.

b.         
Whether a temporary order establishing drilling units can serve as the 
basis for compulsory pooling.

2.         
Whether there is substantial evidence in the record to support the 
WOGCC's compulsory pooling order.

FACTS

[¶5]      In 1980, Amoco 
Production Company (Amoco) petitioned the Commission to establish drilling and 
spacing units for its interests in the Yellow Creek Field in southwest Wyoming 
(Docket No. 191-80). There are several strip sections on the Wyoming-Utah border 
in this area, causing some difficulty in establishing drilling and spacing 
units. Anschutz is a working interest owner in Section 10 of Township 14 North, 
Range 121 West, 6th P.M., Uinta County, Wyoming, which is a strip section with 
only 92.84 acres. Anschutz contested Amoco's request for drilling and spacing 
units in order to protect its interest in Section 10. Ultimately, however, 
Anschutz and the other interest owners compromised on and agreed to drilling and 
spacing units of approximately 640 acres suggested by the Commission. After 
determining that the Phosphoria Formation underlies all or substantially all of 
the above-described lands and is a pool which constitutes a common source of 
supply of gas and associated hydrocarbons, the Commission issued an order 
creating Phosphoria Drilling Unit No. 5 and several other drilling units for the 
production of gas and associated hydrocarbons in the Phosphoria Formation in the 
Yellow Creek Field. Phosphoria Drilling Unit No. 5 consists of all of Section 10 
and the westernmost 593.58 acres of Section 11 in Township 14 North, Range 121 
West, Uinta County, Wyoming, in the Phosphoria Formation. Later, the Commission 
established a drilling and spacing unit for the production of gas and associated 
hydrocarbons from the Weber Formation under the same lands. This drilling and 
spacing unit was called Weber Drilling Unit No. 7. Phosphoria Drilling Unit No. 
5 and Weber Drilling Unit No. 7 are the units at issue in this case.

[¶6]      The Commission's 
order in Docket No. 191-80 was temporary until November, 1981, at which time it 
could be reviewed by the Commission for possible amendment pursuant to WYO. 
STAT. § 30-5-109(d). The Commission ordered Amoco to furnish maps and other 
evidence of drilling activity for the intervening period. Thereafter, the 
Commission continued to review its order periodically. However, no wells were 
drilled in the area, and the Commission received no information about the area 
with which to further define the pool pursuant to WYO. STAT. § 30-5-109(d). 
Therefore, the order remained temporary and subject to review by the 
Commission.

[¶7]      UPRC purchased 
Amoco's interest in the Yellow Creek Field in 1991. In 1995, UPRC notified the 
Commission that it was going to apply for a permit to drill a well located in 
Section 11, Township 14 North, Range 121 West. In Docket No. 122-95, the 
Commission reviewed evidence and conducted a study of the field from the records 
in the office of the State Oil and Gas Supervisor and determined that the 
drilling and spacing units should be maintained for the Weber and Phosphoria 
Formations. The spacing order was again temporary and required UPRC to furnish 
the Commission with maps and other evidence portraying the drilling activity 
taking place from April 1995 until April 1996.

[¶8]      In 1995, UPRC 
petitioned the Commission for an exception location (Docket No. 184-95) on the 
drilling and spacing unit and for a force pooling order (Docket No. 183-95) 
pursuant to WYO. STAT. § 30-5-109. Anschutz is a non-consenting interest owner 
in the drilling unit and contested the petitions. The Commission denied the 
exception location as it affected Anschutz but granted the force pooling 
petition. The Commission also found that it was not possible to accurately 
define the parameters of the Phosphoria and Weber formations underlying the 
subject lands or to determine the reserves underlying Sections 10 and 11 with 
any degree of certainty, due to the limited geological, geophysical, and 
engineering data available. The Commission allocated costs and production in the 
drilling and spacing unit based on the percentage that each tract's surface 
acreage bears to the total surface acreage of the drilling and spacing 
unit.

[¶9]      Anschutz 
perfected an appeal from the order in Docket No. 183-95 under WYO. R.APP. P. 12 
and WYO. STAT. § 16-3-114 by filing a petition for judicial review in district 
court. The district court certified the case to this Court pursuant to WYO. 
R.APP. P. 12.09.

STANDARD OF 
REVIEW

[¶10]   This Court's function in reviewing 
administrative agency decisions is to determine whether the decision and order 
meet the applicable legal standards and are supported by substantial evidence in 
the record. Larsen v. Oil and Gas Conservation Comm'n, 569 P.2d 87, 93 (Wyo. 
1977). We examine conflicting evidence to determine if the Commission could 
reasonably have made its findings and order upon all of the evidence before it. 
Gilmore v. Oil & Gas Conservation Comm'n, 642 P.2d 773, 776 (Wyo. 1982). "If 
an agency's action is supported by substantial evidence, its decision should be 
reversed only for errors of law." Chevron U.S.A., Inc. v. State of Wyoming Board 
of Equalization, 918 P.2d 980, 983 (Wyo. 1996).

[¶11]   This Court does not defer to an 
agency's conclusions of law. Id. However, technical decisions relative to waste 
and correlative rights are for the Commission, as the trier of fact, not the 
court, to decide. Larsen, 569 P.2d  at 93; Pan American Petroleum Corp. v. 
Wyoming Oil & Gas Conservation Comm'n, 446 P.2d 550, 554 (Wyo. 1968). We may 
not substitute our judgment for that of the Commission. Gilmore, 642 P.2d  at 
776.

DISCUSSION

[¶12]   "In 1951, the legislature enacted 
the Oil and Gas Conservation Act, WYO. STAT. §§ 30-5-101 to 30-5-104 and §§ 
30-5-108 to 30-5-119 (1983 & Cum.Supp. 1994) (hereinafter the Act) to 
regulate the oil and gas industry in the state." Union Pacific Resources Co. v. 
Texaco, Inc., 882 P.2d 212, 222 (Wyo. 1994). The Act established the Commission, 
giving it jurisdiction and authority necessary to effectuate the purposes and 
intent of the Act. Id. at 223; see also WYO. STAT. §§ 30-5-103, -104(a) (1983 
& Cum. Supp. 1996). "Our reading of the Act discloses that the purpose is to 
provide a comprehensive regulatory program which prevents the waste of Wyoming's 
oil and gas resources and protects the correlative rights of property owners. 
WYO. STAT. § 30-5-102; WYO. STAT. § 30-5-109." Union Pacific, 882 P.2d  at 223. 
The correlative rights granted by the Act are limited by the need to prevent 
waste. Big Piney Oil & Gas Co. v. Wyoming Oil & Gas Conservation Comm'n, 
715 P.2d 557, 563 (Wyo. 1986); Union Pacific, 882 P.2d  at 224; Gilmore, 642 P.2d  
at 778.

[¶13]   The Commission has broad authority 
to establish drilling units to prevent or assist in the prevention of waste or 
to protect correlative rights. Union Pacific, 882 P.2d  at 224; WYO. STAT. § 
30-5-109(a) (1983). The Commission must first make a sufficient finding that a 
drilling unit is necessary to protect correlative rights or prevent waste, then 
it may issue a compulsory pooling order, if necessary. Union Pacific, 882 P.2d  
at 224. Once a drilling unit is established, the Commission has continuing 
authority to modify its orders to ensure that the drilling unit is not smaller 
than the maximum area that can be efficiently drained by one well. Id. at 
224-25; WYO. STAT. § 30-5-109(b), (d) (1983). When data is developed that 
establishes the extent of the common source of supply, the Commission has 
authority to protect the public interest by increasing or decreasing the size of 
drilling units. Union Pacific, 882 P.2d  at 225.

[¶14]   If tracts of land or mineral 
interests within a drilling unit are separately owned, the Act requires another 
step, either voluntary or compulsory pooling, before exploitation of the 
minerals may commence. Id.

In the absence of 
voluntary pooling, the commission, upon the application of any interested 
person, may enter an order pooling all interests in the drilling unit for the 
development and operation thereof. Each such pooling order shall be made after 
notice and hearing and shall be upon terms and conditions that are just and 
reasonable.

WYO. STAT. § 
30-5-109(f) (1983). The Commission has authority to apportion production, 
allocate costs, and make provisions for the drilling and operation of a well 
when a compulsory order is issued. Union Pacific, 882 P.2d  at 227; WYO. STAT. § 
30-5-109(f) and (g) (1983).

[¶15]   Anschutz argues that its 
correlative rights are being violated because the Commission based production 
and costs for the proposed well on a surface acreage formula. Anschutz relies on 
Larsen v. Oil and Gas Conservation Comm'n, 569 P.2d 87 (Wyo. 1977), and Pan 
American Petroleum Corp. v. Wyoming Oil and Gas Conservation Comm'n, 446 P.2d 550 (Wyo. 1968), to argue that the Commission must make the findings set out in 
Larsen and must base compulsory pooling orders on a scientific determination of 
the amount of recoverable gas under the drilling unit and not on a 
surface-acreage basis. Anschutz' reliance on Larsen and Pan American is 
misplaced. In those cases the Commission failed to make specific findings of 
fact concerning the correlative rights of the parties even though it had 
information and production data about the field available to it because the 
field had been drilled extensively. Larsen, 569 P.2d  at 92, Pan American, 446 P.2d  at 555. In this case the field has not been subject to extensive drilling; 
in fact, no well has been drilled in the area. Unlike the Commission in Larsen 
and Pan American, the Commission in this case found it did not have sufficient 
production data available to calculate reserves accurately because no wells have 
been drilled in the area.

[¶16]   Anschutz claims that the Commission 
ignored its obligations and disregarded the best available scientific 
information regarding the common source of supply in its pooling order. However, 
the Report of the Commission specifically addressed the scientific information 
available and made findings of fact and conclusions of law which were supported 
by the record when it found:

6.         
Subject lands are in a geologic area in the Overthrust Belt containing 
steep dips, folds, faults, pressure boundaries and stratigraphic changes. The 
structure of the Phosphoria underlying subject lands is characterized by a 
faulted and imbricated east flank which is particularly complex. The presence of 
a Fowkes Valley tertiary wedge and a graben or half graben further complicates 
the definition of the eastern flank of the reservoir. The area is very 
unpredictable; small structural complications can have profound geologic 
significance.

7.         The 
Anschutz interpretation of the formations' structure and reserves underlying 
subject lands concludes that a large portion of Section 11 is unproductive and 
that strip Section 10 is entitled to a participation percentage in the 11-3 well 
of either 66.86% or 31%, depending on whether or not the well, once drilled, 
penetrates the lower blocks of the formations. These conclusions are based upon 
all available well control data, a series of serial cross sections (one of which 
is in the area of the Cave Creek Field which is about six miles from the Yellow 
Creek Field), and projections by analogy to geologic data from other areas, 
including the structural geometry of the Carter Creek Field which is about 
twenty miles from the Yellow Creek Field, and from the Anschutz Ranch Field 
which is approximately ten miles from the Yellow Creek Field.

There are currently no 
wells which penetrate the Phosphoria formation in subject lands; the 11-3 well 
will be the first to penetrate the formation. There is no well control data to 
support Anschutz' interpretation of the formations and the reserves underlying 
subject lands. Anschutz' calculation of reserves is based upon volumetrics, not 
upon more accurate production data from existing wells in the Yellow Creek area 
(other than the Urroz No. 1), because there is not sufficient production data 
presently available to calculate reserves.

8.         
UPRC's structural interpretation of the formation underlying subject 
lands is based upon existing well control and its reprocessed and new seismic 
data (UPRC Exhibit No. 4, Docket No. 184-95). A UPRC witness testified that 25% 
of Section 11 is below the gas/water contact if his interpretation of the data 
as shown on Exhibit 4 is correct, though there is still difficulty with the 
seismic and there are internal complexities within the formation, especially 
along the eastern flank, that are not resolvable through interpretation of the 
data. UPRC's interpretation of the structure has a 500' margin of error, to 
either the east or the west, at a 12,000' depth, according to testimony of a 
UPRC witness. Only a time migration was used to image the data on the seismic 
lines; UPRC is in the process of creating a depth migration.

9.         If 
the axis of the Phosphoria formation shifts and the structure's crest is 
actually more toward the southeast of Section 11, the reserves credited to 
Section 11 could increase under either geologic interpretation presented, though 
this cannot be known until a well is actually drilled.

10.       It is not 
possible to define the exact parameters of the Phosphoria and Weber formations 
underlying subject lands, especially on the eastern flank, nor is it possible to 
identify the reserves underlying Sections 10 and 11 with any degree of certainty 
due to the limited geological, geophysical, and engineering data now available. 
There are too many unknowns about the internal complexities of the structure to 
accept either of the interpretations presented. These uncertainties will only be 
clarified by drilling a well that penetrates the formations and studying the 
data which such a well will provide.

The exceedingly 
complex and technical nature of the above findings of fact accentuates the need 
for this Court to defer to an administrative agency's factual determinations. We 
are ill-equipped to determine whether the Commission correctly analyzed and 
weighed the evidence presented to it. However, we are equipped to examine the 
record and recognize that the experts from both Anschutz and UPRC testified that 
the only way to obtain accurate information about the field is to drill a 
well.

[¶17]   Anschutz claims that the Commission 
must fulfill the duties imposed by Larsen before it can issue a force pooling 
order and that a temporary spacing order cannot support a force pooling order. 
As we mentioned earlier, Larsen is distinguishable from this case because the 
data was available to the Commission and the Commission simply failed to make 
findings of fact concerning correlative rights in Larsen. In this case no 
accurate data was available to the Commission and it issued its orders using the 
best available evidence. WYO. STAT. § 30-5-109(f) provides that the Commission 
may enter an order pooling all interests in a drilling unit for the development 
and operation thereof and that each pooling order shall be upon terms and 
conditions that are just and reasonable. The Commission is only required to make 
the findings in Larsen "insofar as it is reasonably practicable to do so." 
Larsen, 569 P.2d  at 92. When it is not practicable to determine reserves under 
each tract, it is reasonable to use a surface acreage formula allocating 
production. Grace v. Oil Conservation Comm'n of New Mexico, 87 N.M. 205, 531 P.2d 939, 945-46 (1975); Panhandle Eastern Pipe Line Co. v. Corporation Comm'n, 
285 P.2d 847, 854 (Okla. 1955). In fact, surface acreage is perhaps the most 
frequently employed basis for allocating pooled production. 6 H. WILLIAMS & 
C. MEYERS, OIL AND GAS LAW § 970.1 (1991 & Supp. 1995).

[¶18]   "[C]orrelative rights must stand 
aside until it is practical to determine the amount of gas underlying each 
producer's tract or in the pool." Grace, 531 P.2d  at 946; see also WYO. STAT. § 
30-5-101(a)(ix) (1983).1 The minimum requirement for force 
pooling is a valid drilling and spacing order, which determines that the acreage 
within the unit is not smaller than the maximum area that can be effectively 
drained by one well in a common source of supply. WYO. STAT. § 30-5-109(a), (b), 
(f) (1983). Although more certain proof of productivity is desirable, and should 
be furnished when available, it is not a requirement before a force pooling 
order can be issued, as long as the pooling order is just and reasonable. WYO. 
STAT. § 30-5-109(f) (1983).

[¶19]   The Commission's authority to order 
pooling of interests in previously undrilled and undeveloped formations 
encourages the development of fields and the drilling of wells, thereby 
preventing waste. WYO. STAT. § 30-5-109(f) and (g) encourage parties to consent 
to the drilling of wells because of the obvious risks involved in drilling for 
oil and gas. If the Commission could not force pool non-consenting interests 
until a field or pool were well-defined, far fewer wells would be drilled, 
resulting in waste. Contrary to Anschutz' contentions, nothing in the Act 
suggests that the Commission can only force pool interests in developed fields 
with well-defined reserves. WYO. STAT. § 30-5-109 (1983).

[¶20]   Anschutz also argues that the 
Commission's findings of fact numbered 12 and 13 in Docket No. 183-95 regarding 
industry practice and procedure are not supported by a rational basis in the 
record. Those findings of fact were as follows:

12.       It is a standard 
practice of the Commission to order the pooling of uncommitted interests on the 
basis of temporary drilling and spacing unit orders, in the absence of voluntary 
pooling, to aid in the definition of reservoirs through the drilling of wells 
and the development of the formations.

13.       It is an accepted 
procedure in the oil and gas industry and a long-standing practice of the 
Commission when ordering pooling to encourage the development of previously 
undrilled formations to allocate costs and production in drilling and spacing 
units upon a tract participation factor based on the percentage that each 
tract's surface acreage bears to the total surface acreage of the drilling and 
spacing unit if there is inadequate information to determine the parameters of 
the formations and the reserves underlying each tract with any degree of factual 
accuracy or certainty. This procedure and practice was utilized by UPRC in its 
determination of the drilling and spacing unit's cost-bearing 
ownership.

[¶21]   These findings are based on the 
Commission's standard practice and are not violative of the Act. In fact, the 
Commission is clearly given statutory authority to change drilling and spacing 
units when drilling produces more information about the parameters of the 
formation. WYO. STAT. § 30-5-104, -109(d) (1983 & Cum.Supp. 1996). The 
Commission is also clearly given the authority to pool interests in a drilling 
and spacing unit in a manner that is just and reasonable. WYO. STAT. § 
30-5-109(f) (1983). We hold that the Commission acted within its authority in 
this case.

CONCLUSION

[¶22]   The Commission's force pooling 
order is supported by substantial evidence, is based on the best evidence 
available and will prevent waste and protect correlative rights to the extent 
reasonably practical until the field is further developed and more accurate 
information becomes available. The Commission did not violate its duty under the 
Act by force pooling the interests under a common source of supply, or pool, as 
established in its drilling and spacing unit orders.

FOOTNOTE

1 Wyoming Statute § 
30-5-101(a)(ix) defines correlative rights as:

[T]he opportunity 
afforded the owner of each property in a pool to produce, so far as it is 
reasonably practicable to do so without waste, his just and equitable share of 
the oil or gas, or both, in the pool.