16 Tex. Admin. Code § 3.37 (2008) (Tex. R.R. Comm’n, Statewide Spacing Rule) 1

(“Rule 37”). Because the relevant portions of Rule 37 have not changed during the pendency of this

appeal, we cite to the current rule for convenience unless otherwise noted.

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-04-00027-CV

Anadarko E&P Company, L.P. f/k/a RME Petroleum Company; 

Larry T. Long, Sammy Adamson and L. Allan Long, in their Capacities

as Trustees for the Lawrence Allan Long Trust, Charles Edward Long Trust,

Larry Thomas Long Trust and John Stephen Long Trust, Appellants

v.

Railroad Commission of Texas; Anadarko E&P Company, L.P.

f/k/a RME Petroleum Company, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT

NO. GN204461, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING

M E M O R A N D U M O P I N I O N

This administrative appeal involves a challenge to a final order issued by the

Texas Railroad Commission granting a well-spacing exception under Statewide Rule 37 to appellant 1

Anadarko E&P Company, L.P. f/k/a RME Petroleum Company. On appeal, Anadarko raises

several procedural challenges to the Commission’s final order, and appellants Larry T. Long,

Sammy Adamson, and L. Allan Long, in their capacities as trustees for the Lawrence Allan Long

Trust, Charles Edward Long Trust, Larry Thomas Long Trust, and John Stephen Long Trust

(collectively the “Long Trusts”), argue that the Commission’s order was not supported by substantial
 The Commission issued a nunc pro tunc order on November 13, 2002, correcting two 2

clerical errors in its previous order.

2

evidence. Because we find no merit in Anadarko’s procedural challenges and we conclude the

Commission’s final order was supported by substantial evidence, we affirm the district court’s

judgment affirming the Commission’s order.

BACKGROUND

The Commission issued a final order granting a permit for the Barksdale Well No. 8

on September 12, 2002. Commission staff had previously granted a permit for Well No. 8 to 2

Anadarko’s predecessor, which was challenged by the Long Trusts for lack of notice. In its final

order, the Commission determined that the original permit, granted administratively by Commission

staff without protest, was void ab initio because the Long Trusts failed to receive notice ofthe permit

application in accordance with Commission rules. Upon proper notice and hearing, the Commission

granted an exception to the spacing requirements under Rule 37 to prevent waste and issued a new

permit for Well No. 8.

The Original Permit

Anadarko’s predecessor UPRC applied to the Commission for a permit to drill

Well No. 8 in 1997. As part of its application, UPRC requested a Rule 37 exception and submitted

a conditional waiver of objection from Sonat Exploration. The plat attached to UPRC’s application

erroneously identified the offset leaseholder and operator as Sonat Exploration, instead of the

Long Trusts. Given the conditional nature of the waiver executed by Sonat Exploration, the
3

Commission sent notice of UPRC’s Rule 37 application to Sonat Exploration on January 9, 1998.

The Commission received no objection to UPRC’s application within the requisite ten-day time

period and, therefore, Commission staff granted UPRC an administrative Rule 37 exception as

allowed under subsection (h)(2)(A). See 16 Tex. Admin. Code § 3.37(h)(2)(A). In the absence of

an objection, the Commission did not hold a hearing or receive evidence regarding UPRC’s

application. UPRC completed the well in June 1998 after receiving approval of its Rule 37

application from Commission staff.

The Long Trusts’ Complaint

On May 23, 2001, the Long Trusts filed a complaint with the Commission on the

ground that they failed to receive notice of UPRC’s application for a Rule 37 exception for

Well No. 8. The Commission set the matter for hearing and conducted an administrative hearing on

the complaint. During the hearing, the Commission also considered whether the well was entitled

to a Rule 37 exception.

Because no one disputed that the Long Trusts were entitled to receive notice

under Rule 37 and UPRC had failed to give notice of its application for a Rule 37 exception to the

Long Trusts, a major focus of the administrative hearing was whether the original permit was void

or voidable. Anadarko argued that the permit was merely voidable because evidence was submitted

that the Long Trusts had actual knowledge of the proposed location for Well No. 8 before it was

drilled. The Long Trusts are a working interest owner in Well No. 8 and, in this capacity, UPRC

sent the Long Trusts an approval for expenditure (“AFE”) with well location plats showing that the

proposed location for Well No. 8 would require a Rule 37 exception. The Long Trusts signed the
4

AFE in March 1998. Thus, Anadarko argued that the Long Trusts’ signing of the AFE demonstrated

actual knowledge of UPRC’s application for a Rule 37 exception and, therefore, cured any defect

in notice. However, like the plat submitted with UPRC’s application to the Commission, the plat

sent to the Long Trusts failed to identify the Long Trusts as the offset operator to the west of the

portion of the unit where Well No. 8 was drilled.

The hearings examiners issued a proposal for decision recommending that the original

permit be declared voidable, not void, because the Long Trusts had actual knowledge of the proposed

well location and did not file a timely complaint with the Commission. The hearings examiners

further recommended that the Commission grant a Rule 37 exception for Well No. 8 on the basis

that the well is necessary to prevent waste.

The Commission considered the proposal for decision in a public conference on

September 12, 2002, and rejected the hearings examiners’ recommendation in part. Contrary to

the recommendation, the Commission voted to declare the permit void ab initio because the Long

Trusts did not receive notice of UPRC’s application as required by the plain language of Rule 37.

The Commission adopted the examiners’ recommendation to grant a Rule 37 exception for Well

No. 8 to prevent waste. Those commissioners who were present signed a final order.

Although representatives of the Long Trusts were present at the Commission’s public

conference on September 12, 2002, they were not given a copy of the Commission’s signed order.

The record reflects that later that day Commission staff faxed a courtesy copy of the order to the

attorneys for Anadarko and the Long Trusts. The next day, September 13, 2002, the Commission

mailed a cover letter and a copy of the final order to the attorneys of record in the administrative
5

proceeding. The attorney for the Long Trusts received the cover letter and final order on Monday,

September 16, 2002.

Motions for Rehearing

Anadarko filed its motion for rehearing on October 2, 2002. That same day, after

receiving Anadarko’s motion for rehearing, the Long Trusts filed a letter with the Commission

requesting that the Commission revise its final order and deny the Rule 37 exception. Two days

later, on October 4, 2002, the Long Trusts filed a formal document specifically labeled as its motion

for rehearing. Like the letter filed on October 2nd, the October 4th motion asked the Commission

to reconsider its final order and deny the Rule 37 exception. Relying upon the date it mailed the

copies of the final order, the Commission considered both Anadarko’s motion for rehearing and the

Long Trusts’ motion for rehearing filed on October 4th to be timely filed.

Nunc Pro Tunc Order

On November 13, 2002, the Commission denied the parties’ motions for rehearing

and issued a nunc pro tunc order correcting two clerical errors in its previous order. The

Commission corrected the year of the hearing from “2002” to “2001” and, based on the evidence in

the record, the Commission corrected the year that the Long Trusts learned about Well No. 8 from

“1988” to “1998.” Following the issuance of this nunc pro tunc order, Anadarko filed a second

motion for rehearing. The hearings examiners advised the parties by letter that the nunc pro tunc

order corrected only clerical errors and that the Commission no longer had jurisdiction to act on the

matter. The Commission therefore took no action on Anadarko’s second motion for rehearing.
The district court also signed an order denying Anadarko’s plea to the jurisdiction and, 3

thereafter, entered findings of fact and conclusions of law regarding its denial of the plea. The

parties do not appeal from the district court’s denial of Anadarko’s plea to the jurisdiction.

6

Appeals in District Court

Anadarko and the Long Trusts filed separate appeals from the Commission’s

final order issued September 12, 2002. The district court signed an agreed order consolidating the

two appeals. Thereafter, the district court entered final judgment affirming the Commission’s

final order. Anadarko and the Long Trusts appeal the district court’s final judgment affirming the 3

Commission’s final order.

DISCUSSION

On appeal, Anadarko raises nine issues. In general, Anadarko faults the Commission

for declaring the original permit void, not voidable, and for considering what it views as an untimely

motion for rehearing filed by the Long Trusts. For their part, the Long Trusts challenge the merits

of the Commission’s order arguing that the Commission applied the wrong legal standard in granting

a Rule 37 exception and that the Commission’s order was not supported by substantial evidence.

Standard of Review

We review the Commission’s final order under the substantial evidence rule. See

Tex. Gov’t Code Ann. § 2001.174 (West 2008). Under the substantial evidence rule, we give

significant deference to the agency in its field of expertise. Railroad Comm’n v. Torch Operating

Co., 912 S.W.2d 790, 792 (Tex. 1995); Texas Health Facilities Comm’n v. Charter Med.-Dallas,

Inc., 665 S.W.2d 446, 452 (Tex. 1984). We presume that the agency’s order is valid and that
7

its findings, inferences, conclusions, and decisions are supported by substantial evidence. City of

El Paso v. Public Util. Comm’n, 883 S.W.2d 179, 185 (Tex. 1994); Charter Med., 665 S.W.2d

at 452. The complaining party has the burden to overcome this presumption. City of El Paso,

883 S.W.2d at 185; Hammack v. Public Util. Comm’n, 131 S.W.3d 713, 725 (Tex. App.—Austin

2004, pet. denied).

In conducting a substantial evidence review, we may not substitute our judgment

for that of the agency on the weight of the evidence on questions committed to the agency’s

discretion. Tex. Gov’t Code Ann. § 2001.174; Charter Med., 665 S.W.2d at 452; H.G. Sledge, Inc.

v. Prospective Inv. & Trading Co., Ltd., 36 S.W.3d 597, 602 (Tex. App.—Austin 2000, pet. denied).

The issue for the reviewing court is not whether we believe the agency’s decision was correct,

but whether the record demonstrates some reasonable basis for the agency’s action. Charter Med.,

665 S.W.2d at 452; Central Power & Light Co. v. Public Util. Comm’n, 36 S.W.3d 547, 561

(Tex. App.—Austin 2000, pet. denied). We will uphold the agency’s order unless the agency’s

decision is not reasonably supported by substantial evidence, in violation of a constitutional or

statutory provision, in excess of the agency’s statutory authority, made through unlawful procedure,

affected by other error of law, arbitrary or capricious, or characterized by an abuse of discretion. See

Tex. Gov’t Code Ann. § 2001.174(2)(A)-(F).

Certain issues raised by the parties involve questions of statutory construction, which

we review de novo. See, e.g., City of San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003)

(appellate courts review matters of statutory construction de novo); In re Humphreys, 880 S.W.2d

402, 404 (Tex. 1994) (questions of law are always subject to de novo review). When construing
8

a statute, our primary goal is to determine and give effect to the legislature’s intent. City of

San Antonio, 111 S.W.3d at 25. To determine legislative intent, we look to the statute as a whole,

as opposed to isolated provisions. State v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002). We begin

with the plain language of the statute at issue and apply its common meaning. City of San Antonio,

111 S.W.3d at 25. Where the statutory text is unambiguous, we adopt a construction supported

by the statute’s plain language, unless that construction would lead to an absurd result. Fleming

Foods of Tex., Inc. v. Rylander, 6 S.W.3d 278, 284 (Tex. 1999). We give serious consideration to

an agency’s interpretation of the statutes it is charged with enforcing, so long as that interpretation

is reasonable and consistent with the statutory language. Tarrant Appraisal Dist. v. Moore,

845 S.W.2d 820, 823 (Tex. 1993); Steering Comms. for the Cities Served by TXU Elec. v. PUC,

42 S.W.3d 296, 300 (Tex. App.—Austin 2001, no pet.). This is particularly true when the statute

involves a complex subject matter. Steering Comms. for Cities, 42 S.W.3d at 300. Courts, however,

“do not defer to administrative interpretation in regard to questions which do not lie within

administrative expertise, or deal with a nontechnical question of law.” Rylander v. Fisher Controls

Int’l, Inc., 45 S.W.3d 291, 302 (Tex. App.—Austin 2001, no pet.).

Additionally, certain issues raised by the parties challenge the Commission’s

authority. The Texas Railroad Commission “is a creature of the Legislature and has no inherent

authority.” Public Util. Comm’n v. GTE-SW Corp., 901 S.W.2d 401, 407 (Tex. 1995). Like other

state administrative agencies, the Commission “has only those powers that the Legislature expressly

confers upon it” and “any implied powers that are necessary to carry out the express responsibilities

given to it by the Legislature.” Public Util. Comm’n v. City Pub. Serv. Bd., 53 S.W.3d 310, 316
 Section 81.051 of the natural resources code provides in relevant part: “The commission 4

has jurisdiction over all . . . oil and gas wells in Texas.” Tex. Nat. Res. Code Ann. § 81.051(a)(2)

(West 2001).

9

(Tex. 2001). It is not enough that the power claimed by the Commission be reasonably useful

to the Commission in discharging its duties; the power must be either expressly conferred or

necessarily implied by statute. The agency may not “exercise what is effectively a new power, or

a power contradictory to the statute, on the theory that such a power is expedient for administrative

purposes.” Id.

Statutory Scheme and Rule 37

We provide a brief overview of the relevant statutory scheme to give context to

the parties’ arguments. The legislature has given the Commission exclusive jurisdiction to regulate

oil and gas wells in Texas. See Tex. Nat. Res. Code Ann. § 81.051(a)(2) (West 2001). Pursuant 4

to this authority, the Commission has adopted various rules regarding the drilling and spacing

of oil and gas wells in Texas, including Rule 37—the Statewide Spacing Rule. See generally

16 Tex. Admin. Code §§ 3.1-.106 (2008). In relevant part, Rule 37 provides:

No well for oil, gas, or geothermal resource shall hereafter be drilled nearer than

1,200 feet to any well completed in or drilling to the same horizon on the same tract

or farm, and no well shall be drilled nearer than 467 feet to any property line, lease

line, or subdivision line; provided the commission in order to prevent waste or to

prevent the confiscation of property, may grant exceptions to permit drilling within

shorter distances.

16 Tex. Admin. Code § 3.37. Rule 37 further provides that when an exception to the spacing

requirements is desired, the applicant shall file an application with the proper fees and attachments
10

as prescribed by the rule. Id. § 3.37(a)(2). The application must include a plat that conforms to

the requirements in subsection (c) of Rule 37. Id. § 3.37(c). In addition, the applicant must file a

list of the mailing addresses of all affected persons as identified in subsection (a)(2)(A) of the rule.

Id. § 3.37(a)(2)(A). The purpose of this list is to allow the Commission to give notice of the

application to all affected persons. See Tex. Nat. Res. Code Ann. § 85.205 (West 2001) (requiring

the Commission to provide notice and an opportunity for hearing). Rule 37 also requires a person

acquainted with the facts pertinent to the application to certify that all facts stated in the application

are true and within the knowledge of that person. 16 Tex. Admin. Code § 3.37(a)(2).

Commission staff may grant an administrative approval of an application for

exception if notice of at least ten days has been given and no protest has been filed or written waivers

of objection are received from all persons to whom notice would be given under the rule. Id.

§ 3.37(h)(2). If a protest is filed, the Commission will hold a hearing on the application for

exception. See Tex. Nat. Res. Code Ann. § 85.205; 16 Tex. Admin. Code § 3.37(a)(3).

Anadarko’s Claims

Challenges to Commission Authority

We turn first to Anadarko’s claims that the Commission erred in declaring the initial

permit void. In its second, third, fourth, and fifth issues, Anadarko challenges the Commission’s

authority to reconsider the issuance of the original permit on the grounds that: the proceeding was

an impermissible collateral attack on a final Commission order; the Commission lacks authority

to review the order granting the original permit; and, even if the Commission could review the

final order granting the permit, the Commission erred in failing to consider and give effect to the
11

equitable defenses of laches, estoppel, waiver, and ratification, and, therefore, the Commission erred

in declaring the permit void and not voidable.

We reject Anadarko’s argument that the Commission proceeding was an

impermissible collateral attack on a final Commission order. Both the Texas Supreme Court and

this Court have recognized that the Commission has statutory authority in certain circumstances to

reconsider its prior orders in oil and gas matters. See Magnolia Petroleum Co. v. New Process Prod.

Co., 104 S.W.2d 1106, 1110-11 (Tex. 1937); Sexton v. Mount Olivet Cemetery Ass’n, 720 S.W.2d

129, 139 & n.5 (Tex. App.—Austin 1986, writ ref’d n.r.e.) (discussing power of railroad commission

to reconsider prior orders and citing Magnolia Petroleum Co. v. New Process Prod. Co., supra;

Railroad Comm’n v. Aluminum Co. of Am. (“ALCOA”), 380 S.W.2d 599, 602 (Tex. 1964) (holding

commission may modify proration orders “where conditions have changed materially, new and

unforeseen problems arise or mistakes are discovered.”)). In Magnolia Petroleum Co., the supreme

court considered whether the Commission had authority to reconsider its previous denial of a

Rule 37 exception and held that, although the Commission was without authority to review or set

aside judicial decrees, the Commission had authority to reconsider its own orders upon a showing

of changed circumstances. Magnolia Petroleum Co., 104 S.W.2d at 1110. In Railroad Commission

v. ALCOA, the supreme court confirmed that “the Commission’s power to regulate oil and gas

production in the interest of conservation and protection of correlative rights is a continuing one

and its orders are subject to change or modification where . . . mistakes are discovered.” 380 S.W.2d

at 602 (emphasis added). In Sexton v. Mount Olivet Cemetery Association, this Court discussed the

Commission’s authority to reconsider its prior orders in light of the supreme court’s holdings in
12

Magnolia Petroleum Co., supra and ALCOA, supra, and concluded that the statutes administered

by the railroad commission granted the Commission the power to set aside its previous orders in oil

and gas matters. 720 S.W.2d at 139 & n.5. This Court explained:

In each of these decisions, the statute involved (Tex. Rev. Civ. Stat. Ann. art. 6049c,

§§ 5, 7, now codified as Tex. Nat. Res. Code §§ 85.049-.053, 85.058-.064 (1978))

almost amounted to an express delegation to the Commission of a power to

reconsider its previous orders in oil and gas matters, for it directed the Commission,

on complaint or on its own “initiative,” to inquire “from time to time” into any aspect

of the oil and gas business to determine, after hearing, whether “waste” was

occurring or was imminent and to issue whatever “rule, regulation or order” may be

“reasonably required to correct, prevent or lessen such waste.”

Id.

The statutes in question have not changed. Section 81.051 of the natural resources

code grants the Commission exclusive jurisdiction over oil and gas wells in Texas. Tex. Nat. Res.

Code Ann. § 81.051. Section 85.201 authorizes the Commission to make and enforce rules

and orders for the conservation of oil and gas, the prevention of waste of oil and gas, and,

correspondingly, the protection of correlative rights. Id. § 85.201 (West 2001); see Sexton,

720 S.W.2d at 139 n.5. In addition, section 85.058 gives the Commission authority to inquire

“whether the oil and gas conservation laws of this state or the rules and orders of the [C]ommission

promulgated under those laws are being violated.” Id. § 85.058 (West 2001). And section 81.053

gives the Commission express authority to “hear and determine complaints.” Id. § 81.053

(West 2001). Furthermore, section 85.205 serves the constitutional and legislative objective of

protecting correlative rights by requiring that no Commission rule or order may be adopted without

“notice or hearing as provided by law.” Id. § 85.205.
 We emphasize that our holding today does not stand for the general proposition that 5

an administrative agency has the inherent authority to reconsider its prior adjudicative orders. See

Sexton v. Mount Olivet Cemetery Ass’n, 720 S.W.2d 129, 139 & n.5 (Tex. App.—Austin 1986,

writ ref’d n.r.e.). Whether an agency possesses such authority must be considered in light of

the statute that vests the agency with administrative power. Id. at 138 (agencies have no inherent

authority).

To the extent Anadarko relies on Sproles Motor Freight Line v. Smith, 130 S.W.2d 1087 6

(Tex. Civ. App.—Austin 1939, writ ref’d), and Public Utility Commission v. Brazos Electric Power

Cooperative, 723 S.W.2d 171 (Tex. App.—Austin 1986, writ ref’d n.r.e.), in support of its claim

that the Commission lacks authority to review its prior orders, we find those cases distinguishable.

Unlike the Commission’s authority in this case, Sproles did not involve the Commission’s authority

in oil and gas matters, but instead concerned the granting of an application for a certificate

of convenience and necessity to operate motor trucks as a common carrier on Texas highways.

130 S.W.2d at 1087. Similarly, Brazos Electric Power Cooperative involved an entirely different

agency—namely, the public utility commission, not the railroad commission—and thus an entirely

different statute. 723 S.W.2d at 173.

13

The Commission proceeding at issue involved a hearing and determination of the

Long Trusts’ complaint that the administrative approval granted by Commission staff was granted

in violation of the Commission’s rules regarding oil and gas conservation, the prevention of waste,

and protection of correlative rights—in particular that the Long Trusts were deprived of “notice and

hearing as provided by law” under Rule 37. Based on the precedents of both the supreme court and

this Court interpreting the Commission’s statutory authority, we conclude that the Commission, in

the absence of judicial review of its prior order, has statutory authority to reconsider its prior

administrative order granting the original Rule 37 exception to UPRC. See Magnolia Petroleum 5

Co., 104 S.W.2d at 1110; ALCOA, 380 S.W.2d at 602; Sexton, 720 S.W.2d at 139 & n.5. We further

conclude that the proceeding was not an impermissible collateral attack on a final Commission order

and that the Commission acted within its statutory authority to consider the Long Trusts’ complaint.

6

We overrule Anadarko’s second and third issues.
14

In its fourth issue, Anadarko complains that the Commission erred in declaring

the original permit void rather than merely voidable. Anadarko is concerned with what it terms

the retroactive effect of the Commission’s permit revocation—i.e., that its production under the

original permit was illegal from its inception. Anadarko frames this argument in jurisdictional terms.

According to Anadarko, because the original permit was valid on its face and the lack of notice to

the Long Trusts was not a jurisdictional defect, the permit was merely “voidable”—i.e., its

revocation was effective prospectively—not “void.” We find these arguments to be without merit.

We first observe that in Magnolia Petroleum Co., supra, the supreme court held that

a Commission order entered without proper motion, notice, and hearing was “void.” 104 S.W.2d

at 1106. In that case, New Process Production Company filed an application to drill three additional

wells on a mineral lease in Gregg County, Texas. Id. at 1107. The Commission, after notice of

the application was duly given, denied the request. Id. Thereafter, New Process again consulted

the Commission about drilling the additional wells. Id. The company presented the matter to the

Commission “without anymotion, additional application, or notices,” and the Commission, without

hearing, entered a second order granting the application. Id. Because the Commission’s second

order was entered “without any motion, additional application, or notices,” the supreme court

cancelled, annulled, and declared void the Commission’s second order granting the application. Id.

In Railroad Commission v. McKnight, the supreme court confirmed its holding in Magnolia

Petroleum Co. “that the [second] order was void, not because the [C]ommisson was without

potential jurisdiction to enter it but because it was entered without proper motion, notice and

hearing.” 619 S.W.2d 255, 258 (Tex. 1981).
 Anadarko relies on the statements of a commissioner at the conference in which the 7

Commission considered the proposal for decision in asserting that the Commission failed to consider

Anadarko’s equitable defenses. However, it is immaterial what the commissioners may have said in

the process of arriving at a decision. See City of Frisco v. Texas Water Rights Comm’n, 579 S.W.2d

66, 72 (Tex. Civ. App.—Austin 1979, writ ref’d n.r.e.). Statements of a commissioner made during

the deliberative process in an open meeting are irrelevant to the judicial determination whether the

agency order is reasonably sustained by appropriate findings and conclusions that have support in

the evidence. Id.

15

As previously noted, section 85.205 expressly limits the Commission’s authority by

prohibiting it from adopting a rule or permit “except after notice and hearing as provided by law.”

Tex. Nat. Res. Code Ann. § 85.205. There is no dispute that the Long Trusts were entitled to notice

under Rule 37. Rule 37 provides that “[n]o well drilled in violation of this section without special

permit obtained, issued, or granted in the manner prescribed in said section . . . shall be permitted

to produce.” 16 Tex. Admin. Code § 3.37(e) (emphasis added). In the absence of proper notice, we

conclude that the Commission did not err in declaring the original permit “void”—i.e., the

production was illegal from its inception—rather than “voidable.” See Magnolia Petroleum Co.,

104 S.W.2d at 1107; McKnight, 619 S.W.2d at 258; see also Rodriguez v. Service Lloyds Ins. Co.,

997 S.W.2d 248, 254 (Tex. 1999) (courts defer to an agency’s interpretation of its own rules unless

plainly erroneous or inconsistent with the regulation or underlying statute). We overrule Anadarko’s

fourth issue.

We similarly reject Anadarko’s complaint that the Commission erred in failing to

consider and give effect to the equitable defenses of laches, estoppel, waiver, and ratification. The 7

record is clear that the Commission considered and rejected the equitable arguments raised by

Anadarko. The Commission specifically rejected Anadarko’s defense of laches when it refused to
16

adopt the hearings examiners’ recommendation and proposal for decision on this issue. Likewise,

the Commission rejected the remaining arguments asserted by Anadarko when it considered and

denied Anadarko’s motion for rehearing. Because the record demonstrates that the Commission

considered and rejected the equitable defenses raised by Anadarko, we consider only whether the

Commission erred in failing to give effect to these defenses.

This Court has recognized that an administrative agency makes fundamental policy

choices when it adopts rules under the APA rulemaking procedures. Texas Ass’n of Long Distance

Tel Co. (Texaltel) v. Public Util. Comm’n, 798 S.W.2d 875, 886 (Tex. App.—Austin 1990,

writ denied). Such policy choices necessarily involve the balancing of competing interests and an

evaluation of the equities of the situation. Id. The Commission’s adoption of notice requirements

thus represents a fundamental policy choice that proper notice is required before the Commission

or its staff may grant a Rule 37 exception. See 16 Tex. Admin. Code § 3.37(a)(2)(A) (requiring

notice), (h)(2) (prohibiting administrative grant of Rule 37 exception unless notice has been given

and no protest has been filed or written waivers of objection are received). Furthermore, as

previously noted, this notice requirement has both constitutional and statutory underpinnings.

We cannot conclude that the Commission erred with regard to the weight it afforded

UPRC’s “equitable” factors as against the interests in strict enforcement of Rule 37’s notice

requirements. See Rodriguez, 997 S.W.2d at 255 (agency is bound to follow its own rules and

procedures); Public Util. Comm’n v. Gulf States Util. Co., 809 S.W.2d 201, 207 (Tex. 1991) (same).

We overrule Anadarko’s fifth issue.
17

Notice

In its first and sixth issues, Anadarko argues that the Long Trusts’ actual knowledge

of the well location and the Commission’s subsequent hearing and finding that the permit is

necessary to prevent waste satisfied the notice requirements in Rule 37 or, alternatively, cured any

defect in notice. We disagree.

Having adopted the notice requirements in Rule 37, the Commission was entitled to

insist upon strict compliance with its rule. See Rodriguez, 997 S.W.2d at 255 (agency is bound to

follow its rules); Gulf States Utils. Co., 809 S.W.2d at 207 (same); see also F.A. Gillespie & Sons

Co. v. Railroad Comm’n, 161 S.W.2d 159, 163 (Tex. 1942) (“An operator’s rights must be acquired

in compliance with the provisions of a valid rule of the Commission; and none can be acquired in

violation of it.”). As previously suggested, that the Commission requires strict compliance with the

notice requirements of Rule 37 is consistent with the statutory scheme and structure of the rule. The

natural resources code prohibits the Commission from adopting an order or rule pertaining to the

conservation or waste prevention of oil and gas “except after notice and hearing as provided by law.”

Tex. Nat. Res. Code Ann. § 85.205. The plain language of Rule 37 places the burden of correctly

identifying affected persons squarely upon the applicant. 16 Tex. Admin. Code § 3.37(a)(2). It is

therefore incumbent upon the applicant for a Rule 37 exception to ensure that the correct parties have

been identified so that the Commission may provide proper notice to those parties. Id.

We agree with Anadarko, and the Commission found, that the Long Trusts had actual

knowledge of the proposed location of Well No. 8. But actual knowledge of the proposed location

does not equate to actual knowledge of UPRC’s application for a Rule 37 exception. Nor does it
18

equate to the notice that the Long Trusts were entitled to receive in order to allow them an

opportunity to protest that application.

The AFE submitted to the Long Trusts identified the Long Trusts as a 25% working

interest owner in the proposed well. But the plat attached to the AFE failed to identify the

Long Trusts as the affected offset operator of the adjacent tract. Even if we assume, based solely on

the proposed location of the well as identified in the plat, that the Long Trusts knew a Rule 37

exception would be required, we cannot assume the Long Trusts knew they were the offset operator

and were therefore entitled to protest such an exception.

While we agree with Anadarko that the Long Trusts had actual knowledge of

the proposed location of Well No. 8, we do not agree that such knowledge satisfied the notice

requirements of Rule 37. The notice requirements of Rule 37 are designed to protect the correlative

rights of those parties affected by a Rule 37 exception. The mere knowledge of a well’s proposed

location without more does not protect correlative rights because it does not give notice of

any potential adverse effects to such rights. Therefore, we conclude that the Long Trusts’ actual

knowledge of the proposed location of Well No. 8 neither satisfies the requirements of Rule 37 nor

cures any defect in notice. We likewise conclude that the Commission’s subsequent hearing on

the Long Trusts’ complaint cannot cure the defects in notice regarding the original permit

application. See, e.g., In re Adoption of Armstrong, 394 S.W.2d 552, 555-56 (Tex. App.—El Paso

1965) (on remand, adopting opinion of U.S. Supreme Court in Armstrong v. Manzo, 380 U.S. 545

(1965) (subsequent hearing does not cure due process defect regarding lack of notice of original

proceeding)). We overrule Anadarko’s first and sixth issues.
19

Final Order and Motions for Rehearing

In its three remaining issues, Anadarko challenges the district court’s determinations

that the November 13, 2002, nunc pro tunc order of the Commission was not a final order and brings

two challenges to the Long Trusts’ motions for rehearing. We reject these claims.

The record demonstrates that the Commission issued its final order on September 12,

2002. Thereafter, on November 13, 2002, the Commission issued an order nunc pro tunc to

correct two clerical errors in its previous order. The Commission’s order nunc pro tunc corrected

the hearing date from “December 12, 13, and 14, 2002” to “December 12, 13, and 14, 2001” and also

corrected another date from “March 1988” to “March 1998.” 

In its seventh issue, Anadarko contends that the district court erred in holding that the

November 13, 2002, order nunc pro tunc was not a final order. The essence of Anadarko’s argument

is that the Long Trusts were required to file a second motion for rehearing from the November 13,

2002, order nunc pro tunc in order to preserve their complaints on appeal, and the Long Trusts failed

to do so. Therefore, according to Anadarko, the district court should have dismissed the Long

Trusts’ administrative appeal for lack of jurisdiction. We disagree.

In support of this argument, Anadarko relies primarily upon section 2001.145 of

the Administrative Procedure Act (“APA”), which requires a timely motion for rehearing as a

prerequisite to an appeal in a contested case. See Tex. Gov’t Code Ann. § 2001.145(a) (West 2008).

Both the Texas Supreme Court and this Court have previously rejected this argument. In Consumers

Water, Inc. v. Public Utility Commission, the supreme court held that a second motion for rehearing

was not required when the agency’s subsequent order denied the parties’ motions for rehearing,
20

but amended the previous order to add the finding of “imminent peril” required under

subsection 2001.144(a)(3) of the APA. 741 S.W.2d 348, 349 (Tex. 1987). Significant to our

analysis here, the supreme court reversed this Court’s judgment and holding that a second motion

for rehearing was required. See id. (reversing Consumers Water, Inc. v. Public Util. Comm’n,

707 S.W.2d 186 (Tex. App.—Austin 1986)).

The supreme court has since confirmed that reviewing courts should use a “more

pragmatic and flexible approach” to evaluate the finality of an agency’s order. Texas-New Mexico

Power Co. v. Texas Indus. Energy Consumers, 806 S.W.2d 230, 232 (Tex. 1991). Under this

approach, courts must recognize the need to minimize disruption of the administrative process and

to afford regulated parties and consumers with an opportunity for timely judicial review of actions

that affect them. Id. The supreme court explained that “there is no single rule dispositive of all

questions of finality, and reviewing courts should consider the statutory and constitutional context

in which the agency operates, and should treat as final a decision ‘which is definitive, promulgated

in a formal manner and one with which the agency expects compliance.’” Id. (quoting 5 J. Stein,

G. Mitchell & B. Mezines, Administrative Law 48-10 (1988)).

Applying the supreme court’s “more pragmatic and flexible approach,” this Court, in

Office of Public Utility Counsel v. Public Utility Commission, held that a second motion for

rehearing was not required when the subsequent orders of the administrative agency did not

alter the original order with respect to the first motion for rehearing. 843 S.W.2d 718, 726

(Tex. App.—Austin 1992, writ denied). In other words, where the agency’s subsequent order did
 We observe that this distinction is consistent with other cases cited by Anadarko. See 8

Railroad Comm’n v. Exxon Corp., 640 S.W.2d 343, 346 (Tex. App.—Beaumont 1982, writ ref’d

n.r.e.); Mahon v. Vandygriff, 578 S.W.2d 144, 146-47 (Tex. Civ. App.—Austin 1979, writ ref’d

21

not grant the motion for rehearing or otherwise change the previous order in response to a motion

for rehearing, this Court determined that there was no need for a second motion for rehearing. Id.

To the extent Anadarko relies on this Court’s decision in Southern Union Gas Co.

v. Railroad Commission, 690 S.W.2d 946, 948 (Tex. App.—Austin 1985, writ ref’d n.r.e.), we find

that case distinguishable. In that case, the Commission granted the gas company’s motion for

rehearing for the limited purpose of changing the effective date to implement new rates and, thereby,

modified its earlier order. The Commission denied the motion for rehearing in all other respects.

The gas company did not file a second motion for rehearing. Id. at 947. This Court determined

that Southern Union Gas was required to file a second motion for rehearing after the Commission

modified its earlier order. Id. at 948. This Court rejected the argument that a second motion

was unnecessary because the modification of the earlier order was not substantial. Id. at 948-49; see

Ross v. Texas Catastrophe Prop. Ins. Ass’n, 770 S.W.2d 641, 644 (Tex. App.—Austin 1989,

no writ) (to draw distinction between order that agency changes substantially in response to motion

for rehearing and one that changes only in minor fashion is not the law of this state).

In this case, unlike Southern Union Gas, the Commission denied the motions for

rehearing. Like Office of Public Utility Counsel, there was no change in the Commission’s order

with respect to the Long Trusts’ motion for rehearing. Therefore, we conclude that the Long Trusts

were not required to file a second motion for rehearing from the Commission’s November 13, 2002,

order nunc pro tunc. We overrule Anadarko’s seventh issue. 8
n.r.e.). In Exxon Corp., the agency granted the motion for rehearing and the reviewing court held

that a second motion for rehearing was thus required. 640 S.W.2d at 345-46. In Mahon, the initial

agency order was contingent upon future events and, therefore, was not a final order. 578 S.W.2d

at 147. The agency issued two subsequent orders, and the appellant did not file a motion for

rehearing regarding either of these orders. Id. at 146. On review, this Court affirmed the trial court’s

dismissal for failure to file a motion for rehearing from the agency’s final order. Id. at 147-48.

22

In its eighth and ninth issues, Anadarko challenges the sufficiency and timeliness

of the Long Trusts’ motions for rehearing. Anadarko first argues that the Long Trusts’ letter filed

October 2, 2002, was not a proper motion for rehearing and, therefore, preserved nothing for review.

Second, Anadarko argues that the Long Trusts’ motion for rehearing filed October 4, 2002,

was untimely because the APA requires a motion for rehearing to be filed within twenty days after

a party receives notice of the Commission’s final order and the Long Trusts received a copy of

the Commission’s final order on the day it was signed, September 12, 2002, thereby making the

applicable twenty-day deadline October 2nd and rendering the October 4th motion untimely.

Because we conclude the Long Trusts’ October 4th motion for rehearing was timely

filed, we do not consider Anadarko’s argument regarding the sufficiency of the October 2nd letter

filed by the Long Trusts.

As previously noted, section 2001.145 of the APA requires a party to file a timely

motion for rehearing as a prerequisite for judicial review. Tex. Gov’t Code Ann. § 2001.145(a).

Section 2001.146 specifies that a party must file its motion for rehearing not later than the

twentieth day after the date on which the party or the party’s attorney of record is notified as

required under section 2001.142. Id. § 2001.146(a) (West 2008); Temple Indep. Sch. Dist.

v. English, 896 S.W.2d 167, 169 (Tex. 1995). Under subsection 2001.142(a), a party shall be
23

notified either personally or by first class mail of any decision or order. Tex. Gov’t Code Ann.

§ 2001.142(a) (West 2008). The APA thus provides two methods by which a party or the party’s

attorney can be notified of an agency’s decision: personal notice or notice by first class mail. Id.

In this case, the record reflects that the Long Trusts did not receive a copy of the

Commission’s order at the public conference on September 12, 2002. Although Commission staff

faxed a courtesy copy of the order to the Long Trusts’ later that day, this faxed copy does not satisfy

the APA requirement of personal notice or notice by first class mail. See Tex. Gov’t Code Ann.

§ 2001.142(a). The record reflects that Commission staff mailed a copy of the order to the

Long Trusts’ attorney of record the next day—September 13, 2002—and that the Long Trusts’

attorney of record received this mailed notice on September 16, 2002. It is this mailed notice that

satisfies the requirements in section 2001.142(a) of the APA. See id. Therefore, the deadline for

filing a motion for rehearing was twenty days from September 16, 2002, or October 6, 2002.

Tex. Gov’t Code Ann. § 2001.146(a). Because the Long Trusts’ motion for rehearing was filed

October 4th, we conclude the motion was timely, and we overrule Anadarko’s ninth issue. We now

turn to the merits of the Long Trusts’ claims.

The Long Trusts’ Claims

In two issues, the Long Trusts contend that the Commission erred in granting a

Rule 37 exception to Anadarko’s predecessor in interest UPRC. First, the Long Trusts argue that

the Commission applied the wrong legal standard and, second, the Long Trusts argue that the

Commission’s order was not supported by substantial evidence.
24

Anadarko and the Commission assert that the Long Trusts have failed to preserve

their complaint that the Commission applied the wrong legal standard by failing to raise this issue

in their motion for rehearing. Alternatively, Anadarko and the Commission argue that even if we

conclude the issue has been raised, the Long Trusts’ complaint is more properly considered in the

context of whether the Commission’s order is supported by substantial evidence because the essence

of the Long Trusts’ argument is that the Commission applied the wrong law to the facts of this case.

Having reviewed the Long Trusts’ October 4th motion for rehearing, we disagree with Anadarko and

the Commission that the Long Trusts have failed to preserve this issue. However, we agree that the

essence of the Long Trusts’ complaint is that the Commission applied the wrong law to the facts of

this case and that this argument is more properly considered in the context of whether the

Commission’s order is supported by substantial evidence, which we address more fully below.

In their second issue, the Long Trusts argue that the Commission’s order granting a

Rule 37 exception is not supported by substantial evidence. Essentially, the Long Trusts argue

that Anadarko failed to establish that Well No. 8 was necessary to prevent waste. For the reasons

discussed below, we reject the Long Trusts’ argument.

Rule 37 allows the Commission to grant an exception to the spacing requirements

thereunder on two grounds: to prevent waste and to prevent the confiscation of property. 16 Tex.

Admin. Code § 3.37(a)(3). The Commission’s final order granted UPRC a Rule 37 exception on the

ground that Well No. 8 was necessary to prevent waste.

The supreme court has defined the term “waste,” as used in Rule 37, to mean “the

ultimate loss of oil.” Gulf Land Co. v. Atlantic Ritchfield Co., 131 S.W.2d 73, 80 (Tex. 1939).
 A “regular” location is a well location that does not require a Rule 37 exception because

9

it meets the requirements of the Commission’s statewide spacing rules or the spacing requirements

in “special field rules” applicable only to a particular field.

25

Under this definition, the court explained that a Rule 37 exception to prevent waste may be justified

if a substantial amount of oil or gas that otherwise would ultimately be lost will be saved by

the drilling of a well. Id. (emphasis added). To obtain a Rule 37 exception to prevent waste, it must

be shown that, because of unusual conditions in the localized area, closer spacing of wells is

necessary to recover the hydrocarbons. Wrather v. Humble Oil & Ref. Co., 214 S.W.2d 112,

117 (Tex. 1948). Thus, to obtain a Rule 37 exception, UPRC was required to show that unusual

conditions—i.e., different from conditions in adjacent parts of the field—existed under the tract for

which the exception was sought; that as a result of these unusual conditions, hydrocarbons cannot

be recovered by any existing well or by additional wells drilled at “regular” locations; and that the 9

volume of otherwise unrecoverable hydrocarbons is substantial.

The record demonstrates that the Barksdale Estate Gas Unit on which Well No. 8 is

located is an irregularly shaped unit with a panhandle section similar to the shape of the State of

Texas or Oklahoma. The well is located in the panhandle section of the unit equidistant from

east and west lines. Although regular locations exist on the unit, no regular locations exist in the

panhandle section. The undisputed evidence showed that there was a rapid depositional environment

in the area of Well No. 8 as contrasted to the remaining field as a whole. The evidence showed that

this rapid depositional environment would impact the heterogeneity, permeability, and porosity in

the area of Well No. 8. The Commission determined that the lease geometry of the panhandle

section coupled with the impact of the rapid depositional environment constituted an unusual
26

condition that precluded the reservoir from being adequately drained by wells at regular locations.

In addition, the evidence showed that Well No. 8 will recover between 224 and 1,056 million cubic

feet of gas that would not otherwise be recoverable by wells at regular locations. The Commission

thus determined that Well No. 8 would recover a substantial amount of hydrocarbons that would not

otherwise be recoverable by wells at regular locations.

The Long Trusts challenge the Commission’s order on the grounds that there was

conflicting evidence presented on the issue of “unusual conditions” at the location of Well No. 8 and

that the Commission failed to require UPRC to demonstrate unusual conditions at the site of the

proposed well. To the extent the Long Trusts argue that certain evidence in the record showed a lack

of unusual conditions, the Long Trusts ignore the established premise that the Commission was

entitled to accept or reject in whole or in part the testimony of the various witnesses who testified.

See City of Corpus Christi v. Public Util. Comm’n, 188 S.W.3d 681, 695 (Tex. App.—Austin 2005,

pet. denied); Railroad Comm’n v. Lone Star Gas Co., 618 S.W.2d 121, 125 (Tex. Civ. App.—Austin

1981, no writ); City of Frisco v. Texas Water Rights Comm’n, 579 S.W.2d 66, 69 (Tex. Civ.

App.—Austin 1979, writ ref’d n.r.e.). Likewise, the Commission was the sole judge of the weight

to be accorded the witnesses’ testimony. Central Power & Light Co., 36 S.W.3d at 561.

The Commission’s order expressly states in finding-of-fact ten that the “undisputed

geologic evidence shows that there was a rapid depositional environment in the area of the Barksdale

No. 8 as contrasted to the field as a whole.” The Commission found that this “rapid depositional

environment” in conjunction with the lease geometry constituted an unusual condition justifying a

Rule 37 exception. The record thus demonstrates that the Commission’s decision to grant a Rule 37
27

exception was based in part on the unusual condition of a “rapid depositional environment” in the

localized area of the proposed well. We conclude that there is a reasonable basis in the record

before us to support the Commission’s finding of unusual conditions at the location of Well No. 8.

See Charter Med., 665 S.W.2d at 452; Central Power & Light Co., 36 S.W.3d at 561.

The Long Trusts further argue that the Commission’s order was not supported by

substantial evidence because the Commission’s consideration of “lease geometry” was improper.

In considering whether to grant a Rule 37 exception to prevent waste, the supreme court has held that

the Commission need not confine its analysis to the sole question as to whether the well will save

oil that otherwise would be lost. Gulf Land Co., 131 S.W.2d at 85. Rather, “the Commission should

be left reasonably free to exercise its sound judgment and discretion,” keeping in mind that the

Commission’s duty is to conserve oil and gas above ground as well as below. Id. Such discretion

would reasonably include the ability to decide which factors to consider in determining whether

to grant a Rule 37 exception to prevent waste, as well as how much weight to give each factor. Id.;

see also Halbouty v. Railroad Comm’n, 357 S.W.2d 364, 374 (Tex. 1962) (finding Commission, in

exercising its regulatory discretion, may give greater or less weight to relevant factors in setting

production limitations); Texas Bldg. Owners & Managers Ass’n v. Public Util. Comm’n, 110 S.W.3d

524, 536 (Tex. App.—Austin 2003, pet. denied) (when exercising delegated regulatory authority,

agency has discretion to consider factors legislature may not have foreseen and to decide relevancy

and weight of those factors in each circumstance).

That the Commission may consider factors beyond mere geology in determining

whether requirements necessary to grant a Rule 37 exception to prevent waste have been met was
28

more recently confirmed by the supreme court in Exxon Corp. v. Railroad Commission, 571 S.W.2d

497 (Tex. 1978). In that case, the court upheld the Commission’s determination that an existing

well bore, as well as economic infeasibility of drilling at regular locations, established unusual

conditions justifying a Rule 37 exception to prevent waste. Id. at 501. Citing evidence that the oil

to be produced from the proposed well could not be produced from any other existing well, the court

affirmed the Commission’s determination that an exception was necessary to prevent waste. Id.

The Commission’s consideration of economic infeasibility in Exxon Corp. is no

different than the Commission’s consideration of lease geometry in this case. We therefore reject

the Long Trusts’ claim that the Commission was forbidden from considering lease geometry when

determining whether a Rule 37 exception should have been granted to prevent waste.

The Long Trusts also argue that the Commission’s order was not supported by

substantial evidence because the Commission failed to make a finding that no well at a regular

location would drain the hydrocarbons to be recovered by Well No. 8. Contrary to this assertion, the

Commission expressly determined in finding of fact 11 that lease geometry coupled with the impact

of the depositional environment would preclude the panhandle section of the Barksdale Unit from

being drained “by wells at regular locations.” The record demonstrated that the formation into which

Well No. 8 was completed was a tight gas formation, which means that gas is not easily produced

from the reservoir without stimulation. In addition, the evidence submitted by UPRC included a well
 To the extent that Long Trusts complain that the Commission allowed UPRC to omit

10

“selected regular locations” from its analysis, the Long Trusts point to a second well that UPRC

could have drilled at a regular location on another adjacent tract. In considering whether to grant a

Rule 37 exception applicable to this tract, the Commission in its discretion was entitled to accept or

reject the testimony and evidence in whole or in part, see City of Corpus Christi v. Public Util.

Comm’n, 188 S.W.3d 681, 695 (Tex. App.—Austin 2005, pet. denied); Railroad Comm’n v. Lone

Star Gas Co., 618 S.W.2d 121, 125 (Tex. Civ. App.—Austin 1981, no writ), and we may not

substitute our judgment for that of the Commission on questions committed to the Commission’s

discretion. Texas Health Facilities Comm’n v. Charter Med.-Dallas, Inc., 665 S.W.2d 446, 452

(Tex. 1984); H.G. Sledge, Inc. v. Prospective Inv. & Trading Co., Ltd., 36 S.W.3d 597, 602

(Tex. App.—Austin 2000, pet. denied).

29

reservoir simulation study showing that Well No. 8 would recover hydrocarbons that would not be

recovered by a well at a regular location. We therefore reject the Long Trusts’ contention. 10

Finally, the Long Trusts contend that the Commission erred in considering volumes

of gas that had been illegally produced since 1998 when deciding whether to grant a Rule 37

exception to prevent waste in 2001. The Commission determined that the proposed well would

recover between 224 and 1,056 million cubic feet of gas that would otherwise be unrecoverable by

wells at regular locations. The Long Trusts agree that the lower number of 224 million cubic feet

of gas is based on record evidence regarding 2001 production forward, while the higher number

was based on record evidence regarding 1998 production forward. As we have previously noted, the

Commission has broad discretion in determining which factors to consider when granting a Rule 37

exception and how much weight to give each factor. See Halbouty, 357 S.W.2d at 374; Gulf Land

Co., 131 S.W.2d at 85. Because the record demonstrates the Commission considered that from 2001

forward the proposed well would recover 224 million cubic feet of gas that would otherwise be

unrecoverable, we find no merit in the Long Trusts’ argument, and we conclude that there is a
30

reasonable basis in the record to support the Commission’s conclusion that a Rule 37 exception was

necessary in 2001 to prevent waste.

We therefore reject the Long Trusts’ claim that the Commission’s order is not

supported by substantial evidence, and we overrule the Long Trusts’ second issue.

CONCLUSION

Having overruled the parties’ issues on appeal, we affirm the judgment of the

district court affirming the Commission’s final order.

__________________________________________

Jan P. Patterson, Justice

Before Chief Justice Law, Justices Patterson and Puryear;

 Chief Justice Law Not Participating

Affirmed

Filed: January 7, 2009