-- . .

THE ,QTTORNEY GENERAL
OF’ TEXAS

GERALD C. MANN **AUSTIN zi.**  **-**

Honorable John E. Taylor Chief Supervisor Railroad Commission of Texas Austin, Texas

Dear Sir: OpinionNo. 0-853 Re: Rule to require owner of a tract of land to pool and combinewith other tracts.

We are in receipt of your opinion request wherein you ask us the following questions:

"1

. Does theRailroad Commission of Texas

.have the right under the law as it now exists to promulgate as a part of its spacingregulations and as a conservationmeasure ina particular oil field the followingprovisions: 'Asto ang~'- tract containing less than 20 acres, the Commission, in order to preventwaste or to prevent the confiscation of property,will grant excep-' tions to preventdrilling on such tracts upon application therefor as hereinaboveprovidedt however, the Commissionwill not grant an application to drill on a tract or tracts containing less than 20 acres unless the applicant has made
a bona fide effort to pool such tract or tracts with a contiguous tract or tracts or parts thereof, so as to establishat least a 20-acre unit. In such cases, applicant shall offer, evidenceat the Hearing on his application concerning iis efforts to enter into a pooling agreement.

**“ 2** 

**.** Is theRailroad Commlsslon of Texas now, clothedwith the legal power to adopt any rule which would require the owner or owners of'a tract of land to pool or comblne same as a prerequisite to granting such owner or owners a permit to drill
a well for'oil and/or gas thereon even though the drilling of same be necessary in order to prevent waste or the confiscation of property."

In an article styled "The Conservation of Oil", 51 Harvard Law Review 1236, by the Honorable Northcutt Elg, we find the following statement:Honorable John E. Taylor, May 30, 1939, Page 2 o-853

"The Texas statute says that 'It is not the intent of this act to require -- that the separately ownedproperties in any pool be unitizedunder one management, control or ownership.' Texas Annotated ~~;~;;~~Civll Statutes/Vernon's 1937,Article 6Cl4g.

several caseswhich have denied exceptions to the kpacingrule and thereby preventeddrilling of *ells on small 'tracts have suggestedthat a fair result could be reached by control of production on the adjoining lands. The power of the Commission to regulate production in relation to spacingwas thought favorably settled In the.decislon in Brown-v.Humble Oil Company, 126 Tex. 296, 83 S.W. (2) 935, but the opinion on'~rehearing, 126 T&x. 296 at 314, 87 S.W. ~~- (2) 1069, castsome doubt upon this, and the Commisslon.has indicatedthat it does not construe the originalprovision as authorlzlng it to require.pool- .ing.(Statementof,ChairmanThompson at hea~ring, May 17, 1937.)"
Whlle~we do not contend that such a-departmental construction should govern in answering this question,we ,do feel that same is .entltledto considerableweight, Ispersuasive,and 'shouldbe given our consideration.

An.injunctionagainst 'production has been detiiedin
some cases unt1l'th.e well owner shall (at some future date) shaveobtained "theamount of oil he is legally entitled to'; that is, "his fair share of the oil inplace under his land." See Stanolind Cl1 & Gas Company v. Railroad Commission, 96 S. W. (2) 664; Bumble Cl1 & Refining Company v. Railroad Commission, 85 S. W. (2) 813.

In 1935 Oklahoma and New Mexico, and in 1936 Louisiana enacted statutes of a new pattern. These statuteswhlchh have been the subject of considerable favorableattention before trade and proiessional groups, authorize the regulatory body to establish in each pool proration units composing a uniform number of acres fixed by the area which one well will economicallydrain and develop. Where the slze or shape of
an individual tract does not conform to that of the standard proration unit, "Pooling"of properties can be required. 'By Pooling" Ismeant an arrangementwhereby the owners of small tracts club together on the costs of drllling a singlewell, sharing in expense and in the recovery In proportion to their acreage. However, these allow the owner of a small tract tb drill hiswell, nothwithstandingfailure of his lease to equal the size of a proration unit; but In such case he receives only an allowablewhich isproportlonate to the,ratio between his area and the area of the standardunit.._,- ~I

:

Honorable John E. Taylor,'+y 30, 1939, page 3 O-853

The New Mexico and'iouisia&' statutesmake "Pooling" available to-ownerswho, because of the smallness or shape of their tracts,might 'bedeprived of a fair share of oil in the proration unit. The Oklahoma statutepermits the'owners of
one or more smaller tracts in the unit to pool with the owner of a ~majWlt,yof~the:tyqWag,e ,xn,the unit,lf.,

the latterdrills
a well..~'The

Oklahoma'.‘atat~te'has.been~upheld by the Supreme Court of Oklahoma in'a,recent case by a blear-cut,'loglcal opinion which cites other applicable decisions. Pattersonv.

. Stanollnd Oil ana Gas Company, 77 Pac. I?) 83 (March 11, 1938). Affirmed 59 Supreme Court~Reporter', ,259.

,. These statuteshave 'aninterestingbackground. As long ago as 1928 in the &Geof. l4arrs.v~. City of ,Oxfora,24 F. (2) 541, an ordinance of a Kansans ~town which~llmited the drilling of wells to one per city.block.w,as sustainedby the Federal Court. ,Theordinance allocated a 1/8th royalty interest among ,theland ovners ofa ~~~b1odk:~.in~.proport,ion~to~theiracreage andawarded the.r~ht"to,drill~tq,'the;operatorholding .the"~major,ity

,o.f ,acres;inthe:

~bloCk. underleas, :.'

It gave~the ,other'~laridovners .theright;to'~

oontribute,,to

the'c.ost

of that ~811;~ and,to r?ceive.in,ret~n'a:,ahare"Snth@;working int&rest in proportion to acreage;,.,,The case :turnina'onthe validity of~a eitr ordinance'didnot~Involvea renulatorg statute although the Court did mention the~doctrineof correl&tiveriahts in uassinu~.~ :, has csus A sabse~uent,ae~lsion.by, a Texas Federal Court ained **an,** orderof the Railroad Commission;made in conformitvwith an ordinanae of the Citr of South Houston,

ng dlstric.ts

of sixteenacres ea&hpo;iz$tiq oreatl ng drilli drilling .to.,one

well.per'district.and DrOViainR aoollng f xoenses~-a~/or.~r,Fodaotion,,amOnR the nroaerties in the dis- &igt .along

the same.general,linesof ~theordinancepassed win Rarrs vi~City~of~'Gxfordl ~~Tysco~:Oil..Company~v.Railroad Commiss'son,

12 F. Supp.'1,95,

Agaln, Tysco Oil Company v. Railroad Commission, 12 F. Supp.202.,

","The drill.ing

district program, invo'lving com-
~,pulsory localized anltization, is a step'ln the direction,

of a plan of field-wide unitiza tion in- ~troduaedto the industrynearly a decade ago. The legal and engineeringbasestfor.requlrlngand'effectuatingeompulsorg~unltization~of an entirepool seem,capable of demon~strat'ion, but the political difficulty of enactme,ntand enforcementhave kept field-wide compulsoryunit~izationin,theblueprint ,stage." See "The Conservation of.Oil",inVolume 51 of the.Harvard.%awReview, 1937-1938,,.at page 1236

_, by R.orthcuttElg.

:~In~T~exaswe

do.:.nothave,

such a.statutewhich author- &es a,reaylator~ oodv td :eatablish~ in each'poolproration i-7 ~?,., C,>'.
,.., ._.,

Honorable John E. Taylor, May 30, 1939, page 4 O-853

units comuosinga uniform number of acres fixed br the area which onewell will economicallydrain and develoD. but on the'other hand) Article 6014 (g),Revised Civil Statutes of Texas, 1923, expresslyprovides:

It

. . .It is not the intent of this act to re- .thatthe seDaratelrowned DroDerties In ooi be unitized under one management. control orownershiD."

While it has been argued by some persons that this statutedoes not directly prohibit enforcedpooling In the - State of Texas 'bythe.RailroadCommission, (seearticle publlshea..in

thee ProgressReports of the American Petroleum Institute Committee on Well,Spacing, submittedat the Eighth Mid-year Meeting, at Wlchita,.Kansas,May, 1938, on page 8' thereofunder paragraphB, designated "Poolingof Tracts in Lieu ofnExceptions ),~see13 Texas Law Review, "TheRule of

written by Robert B. Rardwicke of FortWorth, Texas,

'"In,Texas,manyof the difficulties in connection 'withthe spacingrules arise from efforts to get exceptions to the general.rule,,especially where the distribution of~the allowable is on a potential basis,' regardless of the',.size of the tractupon whichthe ~well.issituat,ed.,TexasRevised Civil Statutes,,~' 1925, Article 6014g, as amendedby Texas Lawa, 1935, House Bill 782, Par.~2, approved by the Governor April, 13, 1933,whi&h,reaas inpart: 'It is not the Inten-., tion of 'thisact to~reou'ire'reDressurinnf an oil uool
or that the seuaratslr owned DroDerties $ anv uool be unitized under one management. control or ownershiD.' This languages

appeared in previous acts, and apparently for the purpose of protecting some operators from the bugaboo of compulsoryunit operation for the entire pool. In that Connection the article by Vance Rowe, ~Unltizatlon:ProvesIts,elf' ,ln.l9?4,i7'4

011pekly, No. 7, page 19; ,isinteresting: llhle the exas a& ~av have the desired and desirable effect of.Dreventunit oDeration for the entire ~001. it has bea forcefullrargued that It also Drevents the Railroad,,~- Commission fro%Yenforcinn the ~oolina'of'small or ir,-- regularly shaDed tractswith other tracts so that uniiecessarv'wells

will not be drilled.~ If there be no authority to enforcepooling of tracts.in order to carry out a proper and uniform spacing program or a "- proration unit program, the Texas act certainly auth; oi+iie$~,

and almost requires, confiscation of the ,.~ smaller-or irregularly shaped tracts.,should the spat-Honorable John E. Taylor, May 30, 1939, Page 5 o-853

ing of prorationunits programs be strictly enforced to prevent thewaste and hazard of close drilling.'"

-we are of the opinion, however, that the language of Article 6014 (g) certainlydoes not.specificallygrant the power to enforcepoollng and clearly,by innuendo,precludes the enforcement thereofby the Railroad Commission: On the other hand, we are of the opinion that Article 6014 (g) as amended, defines and denounces "waste"of oil and gas, and that same confers upon the Railroad Commission the power to adopt rules and regulations to prevent waste. The power thus conferred is~ administrative. It is the power t.oenforce, or execute the statute;not to extend it. The members of the Commission must staywithin the statute, %hLch'-goes to the .iurlsdiction." Waite v. Macy, 246 ,U.S. 606, 609; RaFlrod Commissionv. .~- G. H. & S. A. Railway Company, 112. S. W. 353; SugarlandRailway Company v. State, 163 S. W. 1057.

.-

The Railroad Commissionmay adopt reagonable regulations to enforce the statute,but cannot go beyond it.

We submit that if such an important change in pol-icg is to be adopted, ttmust be adopted by the Legislature.ltself, if indeed,under the situation, it can be adopted at all.

It is settled. law that the power to promulgate "rulesand regulations" for the purpose Of enforcing-orexecutlnga statute is not legislative. United Statesv. UnitedVerde Copper Co., 196 0. S. 20 7-215, but on.the other hand it has been repeatedly hela that the limits of the Railroad CosWssfon's power is to regulate and~not to abridge
or enlarge; see Railroad Company v,. UnitedStates, 188 F. X91-195;
"'Ifthe power here granted to promulgate, rules and regulations has been validly granted, It is simply the power, "tomake and enforceregulations for the ,executionof a statute according to its terms.' It Is not the power to tiodifyexlstingrules of law.!'

The true rule'on this subject i's very carefully -. stated in St. Louis Merchants'Bridge Company v. United States, 188 Federal 191, opinion by Judge Sanborn of the Eighth Circult Court of Appeals, one of the ablest of the Fed.eralJudges,
as follows:

'The Congre'ss

did not in fact~delegate,and it could not delegate, to the Secretary ofAgri-Honorable John E. Taylor,May 30, 1939, page 6 O-853

culture, or to any other executiveofficer the power to a&a to the class of railroad companies
or to the acts punishable under this statute such others as Ln his judgmentought to be punishable thereunder.

"A legislativebody-maydelegate the power to find some fact or situation on which the operatlon of a l&w is conaltloned or to make and enfbrceregulations for the executionbf a statute according to its'terms. Unions Bridge Company v. United States, 204 U. S:364, 386, 27 Sup. Ct. 357;51 Ii;Ed. 523. -MarshaPl~Fi.eld & Compan Clark, 143 U. S. 649, 677, 693, 12~Snp: Ct. $9";; 36 L. Ea; 294; Caha v. United States, 152 U: S.' 211, 218, 219, 14 Sup. Ct. 513, 38 L. Ed. 415; St:Louis & I. Ea:Ry. v. Taylor, 210 U.S. 281; 287, 28 sup. Ct. 616, 52 L. M. 1061; Coopers-. ville Cooperative creamery company v. Lemon, 163 Fed. 145, 147, 89 C. C. A. 595..

But it cannot delegate Its legislativepower, its power to exercise the indlapensbblediscretlbn to make, to add to, to take from, or to modify the law. 'Thetrue distlnctlon,t', sald'JudgeRanney -- for the Supreme Court of 0hl.o ln Clnclnnatl,Wilmlngton & ZanesvllleR. R. Companyv. Commissioners,1 Ohio-St..

77, 88, in a declarationwhich has been-- r&eateiily apprbvea by the Supreme Court, 'isbe; tween the delegation of power to make the law, which necessarily involvesa discretionas to what It shall be, and conferringauthority or discretion as to Its exception, to be exercisedunder an& In pursuance '.- \ of the law. The first cannotbe done. To the latter no valid objection can be made: Marshall Field & Company v. Clarki 143 U. S. 649, 693, 12 Sup. Ct. 495, 33 L,.

Ed. 294i:.Union

Bridge Company v:United Statea, 204.0. 9. 364, 382, 27 Sup. Ct.. 67 .51 L. 523;~Morrlllv. Jones, 106 U. S. 46i? 467 1 , ct. 423, 27 L. Ea:267; United States'v. &ton,
u. s. 677, 687, 688, 12 sup. Ct. 764, 36 L. Ed. 591; Unlted States v. Maid (D.C.) 116 Fed. 650.;" Unit& Sttites

v. Blasll United States v. Hoover Y ame (D.C.) 116 Fed; 654; D.C.) 133.Fed. 950, 952; United States v. Moody (D.C. .164Fed. 269, 271-' Locke's Appeal, 72 Pa. 491, 198, 13 Am. Rep. 716.
Therefore, answeringyour last question firs%--it is 'duropinion, and you may be so advised, that the Ra%lroad Commission of Texas has no authority, conferred upon'lt, under the present statuteswhich will enable kt to make suchref3uls-Honorable John E. Taylor,May 30, 1939, page 7 o-853

tory orders that would requFre the owner or owners of a tract of.lana to pool or combine samewith other tracts as a prerequisite to grantMg such owner or owners a permit to drill
a well for oil and/or gas thereon even though the drilling of
same be necessary in order to preventwaste or confiscatLon of property.

Having answered your second. question in the negative '. landbeing of the opinion that an administrativebody is precluded from doing that j.ndirectly which it cannot do directly,
we also answer your first question 1n the negative. In aaaition to the'authoritieswe have already cited,we,feel that
we may be justlfled Fnmaking the following observationswith reference thereto:

If the Railroad Commissionwere to enter an order to the effect:

"'The'Commisslonwill not grant an appllca- ., tion to"arill on a tract or tracts containing less than 20 acres unless the applicant has made
a bona fide effort to pool such tract or tracts '. with a contiguous tract or tracts orparts thereof, 80 as to extablishat least a 20-acre unit. In such cases, applicant shall ,offerevidence at the hearing onehis applLcatLon concerning his efforts to enter into a pooling agreement."

then and in that event, it is our opinion that the effect of such an orderwould be that the Commlssion'wouldbe imposing
a rule affecting the title to property and being a regulation
on the use of property. Such a regulation coulanot be inposed without an express delegation of statutory authority from the Legislature to the Commission,giving it power so t0 do.

We further submit that the effect of such an order would be to permit the Railroad CommissFon to pass upon the reasonableness of the proposed pooling contract, sought to be entered into by the applicant and in the absence of express legislative authority granting the Commission the power so to do,~we are of~theopinion that in so doing the Commissionwould be in fact exceeding its delegated authority and would be wholly without jurisdLction in so acting.

.Inthe case of United States v. 11,150 Pounds of Butter, 195 F~.657-644, the court held that a forfeiture ofproperty could not be validly claimed on account of a viola=- tion of an administrative order or regulation where the controlling statute aid not SO provide.Honorable John E. Taylor, May 30, 1939, page 8 O-853

This case follows the theory that the legislative policy in respect to the consequences flowing from a violation of an admlnistratlveregulationmust be declared by the Leglslature itself.

St is our opinion that if the Legislature haadintended to grant theRailroad Commissionauthority to impose such regulatory orders - that intentioncould have been easily stated - and 7% is necessary that it shouldhave been stated. (See)Eaton v. United States, 144 0. S. 677.

Trusting that this satlsfactorllyanswers your question in the premises,we remaln

Yours very truly

ATTORNEY GENERAL OF TEKAS

By s&ar Gale Edgar Cde Assistant

EC :MM:wc

APPROVED: S/Ge~ala C. Mann ATTORl?EYGEIiERALOF~S