Case Title: Big Piney Oil & Gas Co. v. Wyoming Oil and Gas Conservation Com'n

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1986-03-13T00:00:00Z

Document:
Big Piney Oil & Gas Co. v. Wyoming Oil and Gas Conservation Com'n1986 WY 69715 P.2d 557Case Number: 85-251Decided: 03/13/1986Supreme Court of Wyoming
BIG PINEY OIL & GAS 
COMPANY, PLAINTIFF, 

 
 
v. 

 
 

WYOMING OIL AND GAS CONSERVATION 
COMMISSION AND BELNORTH, DEFENDANTS.

 
 
Appeal from the District 
Court, NatronaCounty, Dan Spangler, 
J.

 
 
 
 
Representing 
Plaintiff:

George M. Porter and 
Richard L. Williams of Williams, Porter, Day & Neville, P.C., Casper.

 
 
Representing Defendant 
Wyoming Oil 
and Gas Conservation Comn.:

Joe Scott, Sp. Asst. 
Atty. Gen., Casper.

 
 
Representing Defendant 
Belnorth (Belco Development Corp.):

Thomas F. Reese of Brown, 
Drew, Apostolos, Massey & Sullivan, Casper.

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

MACY, 
Justice.

 
 

[¶1.]     This case comes before 
us on a certification from the district court. We are asked to review an order 
of the Wyoming Oil and Gas Conservation Commission (Commission) which restricted 
production from the gas wells of appellant Big Piney Oil & Gas Company (Big 
Piney) to prevent waste of hydrocarbons from the adjoining Big Piney Mesaverde 
Unit (Unit).

 
 

[¶2.]     We affirm the 
Commission's order.

 
 

[¶3.]     During the 1950's, the 
owners of separate leases, including Big Piney, drilled and produced oil and gas 
from the Mesaverde formation under their several leases in the area designated 
as the Big Piney field in Sublette 
County, Wyoming. In the 
early part of the 1960's, these same lessees determined that it would be 
advantageous to form a unit for the purpose of conducting secondary recovery 
operations. During the preunitization negotiations in 1965 and 1966, Big Piney 
elected not to be included within the Unit. Nevertheless, the Unit was formed by 
the remaining lessees in 1967. In 1979, appellee Belco Development Corporation 
(Belco) took over as Unit operator.

 
 

[¶4.]     The Unit surrounds Big 
Piney's 160-acre government lease on the north, east, and south, which lease 
contains five wells. Each of the wells is producing gas from the gas cap in the 
Mesaverde formation.

 
 

[¶5.]     Belnorth Petroleum 
Corporation1 filed an application with the 
Commission alleging in substance:

 
 
1. That Big Piney is 
producing from its wells at a rate which is depleting the gas cap in the 
Unit;

 
 
2. That continued 
operation of the wells violates the correlative rights of the Unit interest 
owners; and

 
 
3. That continued 
operation of the wells jeopardizes the secondary recovery program because of the 
loss of the gas cap, and because Big Piney is producing more than its equitable 
share from the common pool.

 
 
The applicant then prayed 
that the Commission shut in the production of Big Piney's wells or, in the 
alternative, force Big Piney into the Unit.

 
 

[¶6.]     The Commission reviewed 
the matter at hearings on three separate occasions, at which times the parties 
introduced evidence for and against the application. On June 21, 1985, the 
Commission entered an order restricting the production of gas from the Mesaverde 
formation by Big Piney on its government lease in the Big Piney field. On July 
18, 1985, Big Piney filed a petition for judicial review of this matter in the 
District Court for the Seventh Judicial District. Instead of reviewing the 
matter, the district court issued an order on November 6, 1985, certifying this 
case to the Wyoming Supreme Court pursuant to Rule 12.09, W.R.A.P., 1985 
Cum.Supp. Big Piney's statement of issues for consideration by this Court is as 
follows:

 
 
1. Does Belnorth (Belco) 
have standing to bring this action before the Commission?

 
 
2. Was Belnorth (Belco) 
precluded from bringing this action in its own behalf as well as operator of the 
Big Piney Mesaverde Unit (Unit) by reason of estoppel, waiver, or 
laches?

 
 
3. Was the order entered 
by the Commission dated June 21, 1985, in Cause No. 3, Order No. 9, Docket No. 
193-85, arbitrary, capricious, and an abuse of discretion?

 
 
4. Does the Commission 
have legal authority to restrict the production of only one operator in a pool 
or must it restrict all operators ratably?

 
 
5. Is the order entered 
by the Commission and the subject of this review contrary to law, 
unconstitutional, and therefore void?

 
 
I

 
 

[¶7.]     In its first assignment 
of error, Big Piney contends that Belco had no standing to bring this action 
before the Commission and, therefore, the application should have been 
dismissed. In support of its claim, Big Piney asserts that although the 
Commission has the statutory authority to investigate and enforce Wyoming oil and gas laws 
and regulations, it has no authority to act in a judicial capacity by reviewing 
complaints filed by other parties.

 
 

[¶8.]     Big Piney cites no 
authority in support of its claim. We, however, direct attention to the 
following statutory provisions. Section 30-5-102(a), W.S. 1977 (June 1983 
Replacement), provides that "[t]he waste of oil and gas or either of them in the 
state of Wyoming * * * is hereby prohibited." Section 
30-5-111(d), W.S. 1977 (June 1983 Replacement), provides in pertinent 
part:

 
 
"* * * In all cases where 
a complaint is made by the commission, or by the state oil and gas supervisor or 
by any party that any provision of this act, or any rule, 
regulation or order of the commission is being violated, notice of the hearing 
on such complaint shall be served on the parties charged with such violation * * 
*." (Emphasis added.)

 
 
These provisions clearly 
authorize any party to bring any alleged violation of the act before the 
Commission by the filing of a complaint. We, therefore, hold that Belnorth 
(Belco) had standing to file the petition and that the Commission had the 
authority and the duty to act upon it.

 
 
II

 
 

[¶9.]     Big Piney argues next 
that the equitable doctrines of estoppel, waiver, and laches, or a combination 
thereof, should be applied by this Court against Belco and the Commission. In 
the first instance, it is argued that Belco acquiesced in appellant's production 
of gas from the gas cap for a period of eighteen years and, therefore, cannot 
now complain of the production. In the second instance, it is argued that the 
Commission had a duty to investigate to determine if waste was occurring, that 
it failed to do so over an eighteen-year period, and that, therefore, it is now 
restrained from restricting appellant's production under one of the 
aforementioned doctrines. In support of the latter claim, appellant points to § 
30-5-104(b), W.S. 1977, 1985 Cum.Supp., which provides: "The commission has 
authority and it is its duty to make investigations, to determine whether waste 
exists or is imminent, or whether other facts exist, which justify or require 
action by it hereunder."

 
 

[¶10.]  While acknowledging the Commission's 
statutory duty to investigate, we are not persuaded by appellant's 
claim.

 
 

[¶11.]  The equitable doctrine of waiver, either 
as to Belco or the Commission, was not raised before the Commission and is, 
therefore, not to be considered for the first time on appeal. Wyoming Bank & Trust Company of 
Buffalo v. Bonham, Wyo., 
606 P.2d 296 (1980).

 
 

[¶12.]  Equitable estoppel should not be invoked 
against a government or public agency functioning in its governmental capacity, 
except in rare and unusual circumstances and may not be invoked where it would 
serve to defeat the effective operation of a policy adopted to protect the 
public. 31 C.J.S., Estoppel § 138 (1964). In Edgar v. Stanolind Oil & Gas Co., 
Tex. Civ.App., 90 S.W.2d 656 (1935), the question was whether or not the 
conservation laws of the state were being contravened. The court 
stated:

 
 
"* * * That is a matter 
in which the public is concerned; and private parties cannot by conduct and 
agreement between themselves, whether by estoppel or otherwise, vitiate the 
conservation laws, nor obstruct their proper enforcement. And it is immaterial 
whether the enforcement of such conservation laws is invoked by interested 
parties or by the state, if a violation thereof is shown. The public interest in the conservation of 
such natural resources is the matter of paramount concern, and one against which 
estoppel as between the private property rights of the adjacent leaseholders 
cannot prevail." (Emphasis added.) 90 S.W.2d  at 658.

 
 
Then, in Humble Oil & Refining Co. v. Trapp, 
Tex.Civ.App., 194 S.W.2d 781, 787 (1946), the court stated: 

 
 
"It is now settled law 
that acts or agreements of private parties cannot be binding upon, nor work an 
estoppel against, the agencies of the State in the enforcement of its 
conservation laws. [Citation.] Those are matters in which the public interest 
controls. * * *"

 
 
Finally, in the more 
recent case of Northwest Central Pipeline 
Corporation v. State Corporation Commission, 237 Kan. 248, 699 P.2d 1002 
(1985), the court refused to apply the doctrine of estoppel when the prevention 
of waste for the benefit of the public was at stake.

 
 

[¶13.]  Appellant next contends, in an effort to 
cover all the bases, that if the doctrine of estoppel does not apply, the 
doctrine of laches does. Laches has been variously defined as such delay in 
enforcing one's rights that it works to the disadvantage of another. 30A C.J.S., 
Equity § 112 (1965). Governments and their agencies are generally not barred by 
laches when enforcing a public or governmental right. 30A C.J.S., Equity § 114 
(1965). From these general principles, we find that it matters not whether the 
doctrine of estoppel or laches, or a combination thereof, would be applicable 
between Big Piney and Belco; such does not prevent the Commission from 
fulfilling its duty to prevent waste by restricting Big Piney's gas production. 
In view of this holding, we find it unnecessary to consider whether the actions 
or inactions of Belco would have otherwise triggered the application of these 
equitable doctrines.

 
 
III

 
 

[¶14.]  Appellant's third issue, that the 
Commission's order is arbitrary, capricious, and an abuse of discretion, is 
based on the assertion that the Commission failed to consider all of the 
evidence presented, that its findings of fact do not adequately disclose the 
grounds upon which the order was granted, and that the order is not supported by 
substantial evidence.

 
 

[¶15.]  Section 16-3-110, W.S. 1977 (October 1982 
Replacement), provides:

 
 
"A final decision or 
order adverse to a party in a contested case shall be in writing or dictated 
into the record. The final decision shall include findings of fact and 
conclusions of law separately stated. Findings of fact if set forth in statutory 
language, shall be accompanied by a concise and explicit statement of the 
underlying facts supporting the findings. Parties shall be notified either 
personally or by mail of any decision or order. A copy of the decision and order 
shall be delivered or mailed forthwith to each party or to his attorney of 
record."

 
 

[¶16.]  This Court has held that this statute 
imposes a duty on the agency to make findings of basic facts upon which its 
ultimate findings of fact or conclusions are based, without which there can be 
no basis for appeal. Pan American 
Petroleum Corporation v. Wyoming Oil and Gas 
Conservation Commission, Wyo., 446 P.2d 550 (1968). This Court also 
stated in Larsen v. Oil and Gas 
Conservation Commission, Wyo., 569 P.2d 87, 91 
(1977):

 
 
"It is impossible for 
this court to discharge its appellate obligation of determining whether or not 
findings of fact are supported by the evidence, and lawful, logical and 
reasonable conclusions have been drawn, unless a detailed finding of fact on all 
the material issues is made by the administrative agency. * * 
*"

 
 

[¶17.]  Without getting into an endless and 
futile discussion as to what is a basic fact and what is an ultimate finding of 
fact, suffice it to say that we have not found it impossible or, for that 
matter, difficult to review the record on appeal to determine whether or not the 
Commission's findings of fact are supported by substantial 
evidence.

 
 

[¶18.]  We have adopted a definition of 
substantial evidence, when conducting a review of an agency, to be such relevant 
evidence as a reasonable mind might accept as adequate to support a conclusion. Mountain Fuel Supply Company v. Public 
Service Commission of Wyoming, Wyo., 662 P.2d 878 (1983); Board of Trustees, Laramie County School District No. 1 v. Spiegel, 
Wyo., 549 P.2d 1161 (1976). Such evidence may be less than the weight of the evidence but 
cannot be contrary to the overwhelming weight of the evidence. Mountain Fuel Supply Company v. Public 
Service Commission of Wyoming, supra.

 
 

[¶19.]  Applying these standards to the evidence 
presented in this case, we find that there is substantial evidence to support 
the findings of fact made by the Commission on all of the material issues. We 
perceive these issues to be whether or not substantial waste has and will 
continue to occur in the future if Big Piney is permitted to continue unabated 
production and whether this will cause a violation of correlative rights. We 
summarize the testimony as follows:

 
 

[¶20.]  1. There is uncontradicted testimony that 
Big Piney's wells are producing from the same formation as the Unit wells, which 
production has exceeded 150 percent of the estimated gas in place under Big 
Piney's lease.

 
 

[¶21.]  2. Overproduction from the gas cap has 
caused, and will continue to cause, migration of the oil column in the Unit into 
the dry gas cap.

 
 

[¶22.]  3. Approximately 500,000 barrels of oil 
have migrated into the dry gas cap, and there is a potential loss of 800,000 
barrels of oil if Big Piney is permitted to continue unabated 
production.

 
 

[¶23.]  4. The oil that has or will migrate into 
the dry gas cap cannot be recovered.

 
 

[¶24.]  5. There has been no production from the 
gas cap wells on the Unit lands.

 
 

[¶25.]  6. The Commission's staff engineer was 
instructed to determine what restrictions should be imposed to prevent damage to 
the reserve and to protect correlative rights.

 
 

[¶26.]  7. The staff engineer presented his 
findings to the Commission and presented oral and documentary evidence to 
justify the restriction he recommended.

 
 

[¶27.]  8. Big Piney had the opportunity but made 
no objections to the engineer's computations, findings, or 
recommendations.

 
 

[¶28.]  If there is substantial evidence to 
support a finding, as there is here, the ultimate weight to be given that 
evidence is to be determined by the agency in light of its expertise and the 
experience of its members in such matters. Mountain Fuel Supply Company v. Public 
Service Commission of Wyoming, supra. If the agency's decision 
is found to be supported by substantial evidence, we cannot substitute our 
judgment for that of the agency, but we are required to uphold its findings upon 
appeal. McCulloch Gas Transmission 
Company v. Public Service Commission of Wyoming, Wyo., 627 P.2d 173 (1981); 
Williams v. Public Service Commission of 
Wyoming, Wyo., 626 P.2d 564, cert. denied 454 U.S. 896, 102 S. Ct. 394, 70 L. Ed. 2d 211 (1981).

 
 
IV

 
 

[¶29.]  Appellant's fourth contention is that the 
Commission's order restricting its production is contrary to law and ultra 
vires. More specifically, appellant complains that the restriction on only one 
operator in the pool is a violation of that operator's correlative 
rights.

 
 

[¶30.]  Section 30-5-101(a)(ix), W.S. 1977 (June 
1983 Replacement), provides:

 
 
"`Correlative rights' 
shall mean the 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."

 
 
Section 30-5-102(b), W.S. 
1977 (June 1983 Replacement), further provides:

 
 
"Whenever in order to 
prevent waste the commission limits the total amount of oil and gas which may be 
produced in any pool in this state to an amount less than that amount which the 
pool could produce if no restriction was imposed, the commission shall allocate 
or distribute the allowable production among the several wells or producing 
properties in the pool on a reasonable basis, preventing or minimizing 
reasonably avoidable drainage from each developed area not equalized by 
counter-drainage, so that each property will have the opportunity to produce or 
to receive its just and equitable share, subject to the reasonable necessities 
for the prevention of waste."

 
 

[¶31.]  Based on these provisions, appellant 
argues that the Commission had no authority to restrict its production without 
similarly restricting Belco's production. Appellant's argument fails for the 
following reasons.

 
 

[¶32.]  Testimony at the hearing demonstrated 
that the waste in question was caused by the production of gas cap gas. 
Testimony indicated further that while Belco was producing casinghead gas, it 
was not producing gas cap gas; thus, there was no production by Belco to 
restrict in order to prevent waste. Should Belco begin production of gas cap gas 
in the future, appellant would clearly be entitled, under the above statutes, to 
an allocation of production so that each operator would have the opportunity to 
produce its equitable share.

 
 

[¶33.]  Furthermore, the record reflects that, 
due to migration of gas into the gas cap, appellant has already produced more 
gas from the common pool than was estimated to be under its lease. For this 
reason, it would be inequitable to restrict production of gas cap gas by Belco 
until such production has reached the level already produced by 
appellant.

 
 

[¶34.]  Finally, we note that the rights granted 
by the statutory provisions cited above are limited. That is, although the owner 
of each property in a pool has the right to produce its equitable share of the 
oil and gas in the pool, that right is always subject to the need to prevent 
waste. For these reasons, we find that the Commission had the authority to 
restrict appellant's production without similarly restricting Belco's 
production.

 
 
V

 
 

[¶35.]  Appellant's final contention is that the 
order entered by the Commission is contrary to law, unconstitutional, and 
therefore void. We have already stated that the order is not contrary to law 
based upon the issues raised by appellant before the Commission. Appellant now 
contends for the first time on appeal that the restriction on its production is 
so unreasonable and confiscatory that it amounts to a taking of property without 
just compensation in violation of the Fourteenth Amendment to the United States 
Constitution.

 
 

[¶36.]  Appellant fails to appreciate that the 
Commission's order represents a valid exercise of the State's police power; it 
does not constitute a taking under the right of eminent 
domain.

 
 
"* * * [E]minent domain 
takes property because it is useful to the public, while the police power regulates the use of property 
or impairs rights in property because the free exercise of these rights is 
detrimental to public interest * * *." (Emphasis added.) 29A C.J.S., Eminent 
Domain § 6 at 178 (1965).

 
 

[¶37.]  When exercising its police powers, the 
State must act reasonably and cannot, under the guise of such powers, impose 
unreasonable or arbitrary regulations. Steffey v. City of Casper, Wyo., 
357 P.2d 456 (1960). As we previously stated, it is the statutory duty of the 
Commission to prevent waste and to protect correlative rights. We do not find 
the restrictions imposed by the Commission in the present case to be an 
unreasonable or arbitrary means of fulfilling that duty. The Commission must be 
given wide discretion in performing its statutory duty, and we will not 
substitute our judgment for that of the Commission on disputed factual issues as 
to how that duty is best performed. Toavs v. State ex rel. Real Estate 
Commission, Wyo., 635 P.2d 1172 
(1981).

 
 

[¶38.]  We also do not find the restriction to be 
confiscatory. Appellant has produced one and one-half times the amount of gas 
estimated to be under its lease. In short, we hold that the Commission's order 
does not constitute a taking in violation of the Fourteenth Amendment and does 
not reach the level of inverse condemnation as claimed by appellant; therefore, 
the order of the Commission is affirmed.

1 Subsequently the 
application was amended to state Belco Development Corporation, an affiliated 
corporation of the applicant.