THEA-JTORNEY GENERAL 

OFTEXAS 

Honorable Olin Culberson, Commissioner 

Railroad Commission of Texas 

Austin, Texas 

Dear Sir: Opinion No. O-5008 

* Re: Allocation of gas allowables among operatorsin gas fields 

under Article 6008, Vernon's 

Annotated Civil Statutes. 

This is in response to the request contained In 

your letter of December 10, 1942, for the opinion of this 

department upon the following question: 

"Please advise whether or not the RaLlroad Commission is legally required or authorized, 

when the aggregate lawful volume of the open flow 

or daily potential capacity to produce of all wells 

located in a common reservoir producing only sweet 

gas, Is in excess of the dally reasonable market 

demand for gas from such common reservoir, to restrict the withdrawals from such common reservoir 

to the amount of the reasonable market demand therefor and whether or not, in order to adjust correlative 

rights, the Commission is required to allocate to 

each &&well producing gas from such common reservoir a nextage of the dally uroductlve capacity 

of each-well which may be produced dally during the 

following month from each was well producing gas from 

such common reservoir=accor=e with the factors 

set out In Article 6008 when such allocation might 

result in the depriving of one or more persons of 

a market for the sale of gas which has already been 

obtained. 

"In explanation of the last underscored lines 

is meant whether such allocation would reduce the 

volume of gas available from the common reservoir to 

the marketer of such gas and below the volume which 

he has contracted to deliver, keeping in mind that 

the volume which he is now selling to a bonaflde 

market is less than the volume the Commlsslon has 

found would produce physlcal waste. 
Honorable Olin Culberson, page 2 0-5008 

"I respectfully ask that you furnish me your 

opinion at your very earliest convenience and, if 

possible, prior to December 16th when the Commission 

will hold Its next statewide hearing." 

As we understand your inquiry, you desire to know 

whether or not It is the duty of the Commission once it sets 

~the total allowable for gas from a particular gas field produclng sweet gas only, to allocate and apportion the total 

allowables among the various wells ln the field in the manner set forth In Article 6008, Vernon's Annotated Civil 

Statutes, when the necessary effect of such apportionment as 

to a particular operator ~111 be to deprive him (wlth the 

wells he currently has) of sufficient gas to fulfill previously existing contract commitments he has made. 

Pertinent provisions of Article 6008 follow: 

‘Sec. 10. It shall be the duty of the 

Commission to prorate and regulate the dally gas 

well production from each common reservoir in the 

manner and method herein set forth. The Commission 

shall prorate and regulate such production for the 

protection of public and prlvate Interests: 

"(a) Jn the prevention of waste as 'waste' 

is defined herein. 

"(b) In the adjustment of correlative rights 

and opportunities of each owner of gas in a common 

reservoir to produce and use or sell such gas as 

permitted in this Article. 

'Sec. 11. The Commission shall exercise the 

authority to accomplish the purpose designated under 

item (a) of Section 10 when the presence or imminence 

of waste is supported by a finding based upon the 

evidence introduced at a hearing to be held as herein 

provided. 

"The Commlsslon shall exercise the authority 

to accomplish the purpose designated under item (b) 

of Section 10 when evidence Introduced at a hearing 

to be held as herein provlded will support a finding 

made by the Commission that the aggregate lawful 

volume of the open flow or daily potential capacity 

to produce of all gas wells located in a common 

reservoir, is in excess of the dally reasonable market 

demand for gas from gas wells that may be produced 

from such common reservoir, to be utilized as permitted in this Article. 
Honorable Olin Culberson, page 3 0-5008 

"Sec. 12. On or bafore the twentieth (20th) 

day of each calendar month the Commission shall hold 

a hearing after notice has been given, as provided by 

lea, for the purpose of determining the aggregate 

daily capacity to produce of all gas wells ln a common reservoir, and as nearly as posslble, the daily 

volume-of gas from each common reservoir that will 

be produced from gas wells during the following 

month to be utilized as permitted in this Article. 

Upon such determination, the Commission, based upon 

evidence introduced at such hearing, shall allocate 

to each gas well producing gas from such common reservoir a percentage of the dally productive capacity of 

each well which may be produced daily during the following month from each gas well producing gas from 

such common reservoir. Such percentage of the dally 

producing capacity of each well shall be regarded as 

Its daily allowable production of such dally volume 

required for utilization from such common reservolr. 

The daily allowable production of each gas well shall 

L;dc;;p;ted and allocated as provlded In Sections 13 

"sec. 13. In determining the daily allowable 

productlon for each gas well the Commission shall take 

Into account the size of the tract segregated with 

respect to surface position and common ownership upon 

which such gas well or wells are located; the relation 

between the daily producing capacity of each gas well 

and the aggregate dally capacity of all gas wells 

producing the same kind of gas In the same common reservoir or zone; and all other factors which are pertinent; provided that the Commlsslon shall not take 

into account the size of the tract upon which any gas 

well or wells are located ln excess of the efficient 

drainage area of such well or wells, producing at 

twenty-five per cent (25%) of the daily productive 

capacity, which dralnage area shall be determined by 

the Commlsslon. In ascertaining the drainage area of 

a well, the Commission shall take Into account such 

factors as are reflected In the productive capacity of 

a gas well, Including formation pressure, the permeabillty and porosity of the producing formation, 

and the well bore's structural position, together 

with all other factors taken Into account by a reasonably prudent operator in determinlng the dralnage 

area for a gas well. 

%eC. 14. It shall be the duty of the Commlsslon, after notice and hearing, to ascertain and 
Honorable Olin Culberson, page 4 o-5008 

determine the reasonable market demand for gas from 

gas wells to be used for light and fuel purposes and 

for all other lawful purposes to which sweet gas may 

be put under the terms of this Article and by proper 

order to restrict the production of gas from all gas 

wells In said field producing such gas to an amount 

equal to market demand or to an amount which may be 

produced without waste as otherwise defined; provided, however, the production of such gas shall in 

any event be restricted to the amount of the reasonable market demand therefor. In such order the Commisston shall allocate, distribute or apportion the 

total allowable production from such field. among 

the various gas wells affected by the order on's 

reasonable basis, and as provided in Section 13. 

It shall likewise be the duty of the Commlsslon to 

prorate the daily gas well production of sour gas 

produced from each common reservoir of sour gas in' 

this State. The hearing for such purpose shall be 

held at the same time as the hearing pertaining to 

the proration of sweet gas well production. The proration of sour gas well production shall be accomplished according to the manner and method herein 

provided for the proration of sweet gas well proauction. 

"Sec. 15.’ Nothing contained in this Article 

shall require that the production from any gas well 

with a daily natural open flow of two hundred thousand (2~00,000) cubic feet of natural gas or more to 

be restricted to a quantityless than fifty thousand 

(50,000) cubic feet of natural gas daily; and nothing 

herein shall require that the production from any gas 

well with a daily natural open flow of less than two 

hundred thousand (200,000) cubic ye& of gas be reduced to a quantity less than twenty-five per cent 

(258) of Its natural open flow. * * + 

saec. 20. In the event the Commission finds 

that the owner of any gas well has failed or refused 

to utilize or sell the allowable production from his 

well when such owner has been offered a connection or 

market for such gas at a reasonable price, such well 

shall be excluded from consideration in allocating the 

daily allowable production from the reservoir or zone 

in whlcb same Is located until the owner thereof Signnifies to the Commission his desire to utilize or sell 

such gas. In all other cases all gas wells shall be 

taken into account in allocating the allowable production among wells producing the same type of gas." 
Honorable Olin Culberson, page 5 0-5008 

You will note that under the provisions of Section 

10 of Article 6008 it is made the a of the Commission to 

prorate and regulate daily gas well production In the manner 

set forth In the article. The Legislature has declared that 

the steps set forth are to be taken: 

(a) To prevent waste - when the presence or lmmlnence of waste Is supported by a findfng based upon the evidence 

introduced at a hearing to be held as provided. Section 11. 

We pretermit any discussion of the power of the Commission to 

act to prevent waste, sl.nce we understand that the total market demand for the field is less than the amount the Commlssion has found may be produced without waste. 

(b) To adjust correlative rights and c~~hp~Et:;es~~ 

of the various owners of gas in the reservoir. 

is to adjust these correlative rights and opportunltles when 

the evidence introduced at the hearing required by Article 

6008 ~111 support a flndlng that the aggregate lawful volume 

of the open flow or dally potential capacity to produce of 

all gas wells located in a common reservoir, is in excess of 

the daily reasonable market demand. Sectlon 11. 

The mechanics for the CornmIssion to follow in exercising the duties previously expressed are set forth In Sections 12 and 13. Section 12 requires the Commission to hold 

a hearing on or before the twentieth day of each month. The 

purpose of the hearing is to determine: 

(a) The aggregate dally c;~;;z; ~~~t,"~;~; of all 

gas wells In the common reservoir. , we 

call your attention to the provisions of Sectlon 8 whereby it 

is made the duty of all operators to determIne during the 

months of January and July of each year the open flow and rock 

pressure of each of their gas wells, and to file verified reports thereof with the Commission on or before the tenth days 

of those months. 

(b) The Commission 1s also required to determine 

as nearly as possible the daily volume of gas from each common reservoir that will be produced from gas wells during the 

month to follow to be utlllzed for the lawful purposes for 

which gas may be used as set forth In Section 7 of Article 

6008. This requirement Is reiterated In Section 14 wherein 

the Commission Is required to ascertaln each month the reasonable market demand for gas to be used for light and fuel and 

all other lawful purposes. Having made this finding, it IS 

then the duty of the Commission to restrict the Droduction 

of gas from all Ras wells to an amount eaual to market demand; 

or if only a lesser amount may be produced without causing 

waste. then to an amount that may be produced without waste. 
Honorable Olin Culberson, page 6 0-5008 

When the Commission has heard evidence and made its 

determination, It is then required to allocate to each gas 

well proauclng gas from such commons reservoir, a percentage 

of its dally productive capacity, which will also be's percentage of the total reasonable market demand for the field. 

Thls~ is the well's allowable for the month to follow. The 

Commission may not assign an arbitrary percentage to each 

well. It is required to take Into consideration the'factors 

and follow the formula set forth in Section 13. Moreover, 

if after an allowable has been thus assigned each well, It is 

found that any individual owner has failed or refused to 

utilize or sell the allowable production from his wells when 

he has been offered a connection or market at a reasonable 

price, the wells of that operator are thereafter to be excluded from consideration in allocating the total daily allowable 

production from the reservoir until the operator signifies 

his desire to sell or utilize such gas. Section 20. We do 

not understand this section to be involved un@er the facts 

submitted. 

Thus you will note that Article 6008 not only authorizes but specifically requires the Commission to allocate 

or apportion the total market demand for a sweet gasfield 

among the various wells for the purpose of adjusting the correlative rights and opportunities of the various owners. 

Article 6008 provldes no exception for instances occasioned 

when an operator has contracted to sell more gas than his 

allowable or apportlonment. 

We offer the following qualification to the foreWm. Under the provisions of Sectlon 15 of Article 6008, 

the Commission is not required to restrict any gas well having a daily natural open flow of two hundred thousand (200,000) 

cubic feet of natural as or more to a quantity less than 

fifty thousand (50,000 k cubic feet of natural gas daily; nor 

is the Commission required to reduce the allowable of,a well 

having a daily natural open flow of less than two hundred 

thousand (200,000) cubic feet to a quantity less than twentyfive per cent of its natural open flow. 

It follows then that it is our opinion, and you 

are so advised, that If the Commission finds at its next 

monthly hearing that the total reasonable market demand for 

the field in question is less than an amount which may be produced without waste, and that undue drainage Is taking place 

from one well or wells within the field to another well or 

wells therein it will be the duty of the Commission to apportion the total market demand among the various wells in the 

field so as to prevent, if possible, such undue drainage. 
Honorable 

this duty 

Olin Culberson, page 7 0 -5008 

Further, it is our opinion that the Commission has 

to perform even though as to an individual operator the apportionment received Is less than his contract commitments. 411 contracts are made subject to a valid exercise 

of the police power. In view of the fact that the Commission 

is required to nass upon the reasonable market demand for a 

field and its proper apportionment among the operators, monthly, the parties to the contract In question must have contemplated that the operator's apportionment was subject to 

fluctuation. Moreover, no operator couldlawfu?.ly sell more 

gas than he owns (more than his reasonable share in the common reservoir) and thereby bind the Commission to fix his 

allowable in accordance with contract commitments. Gillespie 

v. Railroad Commission, 161 S.W. (2d) 159. 

We presume that the question as to your duty and 

authority under Article 6008 arises from the language used 

by We Court in Thompson v. Consolidated Gas Company, 300 

U. S. 55, 81 L. Ed. 510. 

The Consolidated case held invalid a gas proration 

order of the Commission prorating gas in the Panhandle fields 

and allocating the total among the various operators. 

The Supreme Court set forth the specific findings 

of the trial court to the effect that the order was not intended to prevent waste; or to adjust correlative rights in 

the common reservoir for the purpose of averting un-iust 

drainage from the reserves of those lacking uine line connections. The Court further held that these findings were adequately supported by the evidence. 

The Court thereupon concluded that an order entered 

by the Commlssion for the sole purpose of compelling those who 

have merket outlets to purchase gas from others having no connections is lawful saying that the law reports "present no 

more glaring instance,,of the taking of one man's property and 

giving it to another. 

However, Mr. Justice Brandeis was careful to point 

out in his opinion that the order was not entered to prevent 

undue drainage and that: 

"We assume also that the State may ConstitUtionallg prorate production in order to prevent undue drainage of gas from the rzserves of Well Owners 

lacking pipe line connections. 
Honorable Olin Culberson, page 8 O-5008 

Cur interpretation of the Consolidated cage is tb,at 

the Railroad Commission may legally apportion gas between wells 

If it has found either that waste or drainage is taking place. 

Such interpretation is strengthened by the interpretation 

accorded the Consolidated case by Judge Hutcheson, speaking 

for the statutory three-judge Federal Court in Henderson v. 

Terrell. 24 Fed. Sup. 147. There the statute and the order 

entered pursuant thereto was attacked, as being a restriction 

on plaintiffs' production, although plaintiffs were producing without waste, in order to compel plaintiffs to share 

the market for their gas with owners and operators of wells 

having no market. The Court differentiated the facts in the 

Consolidated'case w~ith the facts in the Henderson case in 

this language: 

"Indeed, the takings from those wells had 

been far in excess of the amount of gas which 

had originally underlain the structure there, 

but notwithstanding this, there had'been such 

rapid and heavy migration into the low pressure 

area, caused by the heavy production of plaintiffs' and others In that area, that there was 

still nearly as much gas under plaintiffs' lands 

as had originally been there. 

"The proof thus demonstrated beyond peradventure, that In restricting plaintiffs' proauction in the future, the orders did not operate 

injuriously as to them, as the orders entered 

in Consolidated Case, had operated in subjecting 

the plaintiffs' properties there to a contiffuance 

of the drainage they had already undergone. 

The Court concluded as to the order and statute: 

"We see nothing in the provision at all 

violative of due process. We see in it only 

a reasonable, Indeed, almost a necessary exercise of the police power to protect owners of 

wells, whose unrestricted right of capture the 

statute has lawfully invaded, in order to protect the gas reserves from dissipation in inferior uses, form having their gas drained away by 

the disproportionate taklngs, form the reservoir, 

of their owners.' 

It is our opinion, therefore, that the Commission 

isrequired to perform the duties prescribed by Article 

~~O~x;;tlt has found conditions of waste or undue drainage 

. 
Honorable Olin Culberson, page 9 0-5008 

Yours very truly 

ATTORNEYGENERAL OF TEXAS 

By a/ Lloyd Armstrong 

Lloyd ArmstrMg 

Assistant 

LA:EP 

APPROVED DEC 17, 1942 

S/Gerald C. Mann 

ATTORNEYGEN~AL OF TEXAS