Source: https://supreme.justia.com/cases/federal/us/310/573/
Timestamp: 2019-04-23 23:55:24+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 310 › Railroad Comm'n of Texas v. Rowan & Nichols Oil Co.
Railroad Commission of Texas v. Rowan & Nichols Oil Co.
An order of a state commission for limiting and prorating the production of an oil field fixed the maximum allowable to any well at 2.32% of its "hourly potential," but gave to "marginal" wells -- those which, if their low capacity were curtailed, would have to be prematurely abandoned -- a special status, allowing each of them production up to twenty barrels per day. Because of the large number of such low-capacity wells, approximately 385,000 barrels, out of a total daily "allowable" of 522,000 barrels for the entire field, were exempt from the "hourly potential" formula. A company whose wells were favorably situated and capable of large production, but were allowed by the formula a daily production of but twenty-two barrels each, claimed that the regulation disregarded its right to the oil in place within its ground; that it permitted others undue opportunity to capture oil draining from its ground; that the "potential" method failed to give sufficient weight to relevant factors in the measurement of oil in place, especially to the depth of the company's reserves; that only an allocation based upon acre feet of the oil sand, or its equivalent, would be reasonable; that the order was, in effect, an allocation on a flat per-well basis, regardless of great variation in the capacity of wells and the density of well drilling on different tracts; that excessive drillings allowed by the commission as exceptions to its general spacing rule enabled densely drilled tracts, by virtue of the "marginal" allowances, to drain away the company's reserves, and that, for these reasons, the company's property was taken without due process of law.
1. That, in view of the difficulties of the problem of fair allocation, the speculation involved in an approach to its solution, and the special function of the commission, a federal court should not undertake to determine it upon the conflicting testimony of experts. P. 310 U. S. 580.
2. In a controversy such as this, courts must not substitute their notions of expediency and fairness for those which have guided the agencies to whom the formulation and execution of policy have been entrusted. Pp. 310 U. S. 580-581.
3. Whether a system of proration based upon hourly potential is as fair as one based upon estimated recoverable reserves or some other factor or combination of factors, is, in itself, a question for administrative, and not judicial, judgment. P. 310 U. S. 581.
In a domain of knowledge still shifting and growing, and in a field where judgment is therefore necessarily beset by the necessity of inferences bordering on conjecture even for those learned in the art, it would be presumptuous for courts, on the basis of conflicting expert testimony, to deem the view of the administrative tribunal, acting under legislative authority, offensive to the Fourteenth Amendment.
4. In making exceptions to its general spacing rule and general restrictive production formula in favor of small, irregularly shaped tracts that otherwise might lose their oil by failure to drill or inability to operate at a profit, the commission was entitled to take into account not only the individual interests of these small owners, but also effects on the State's economy. P. 310 U. S. 582.
5. It is not for the federal courts to supplant the commission's judgment, even in the face of convincing proof that a different result would have been better. P. 310 U. S. 583.
Certiorari, 309 U.S. 646, to review the affirmance of a decree (28 F.Supp. 131) enjoining the enforcement of an oil proration order.
The question before us is the validity, when challenged by appeal to the Fourteenth Amendment, of an oil proration order promulgated by the Railroad Commission of Texas insofar as it applies to the respondent's wells.
Court for the Western District of Texas enjoining the Commission from carrying its proration plan into effect. 28 F.Supp. 131. With modification not here relevant, the Circuit Court of Appeals affirmed the decree. 107 F.2d 70. We brought the case here by certiorari, 309 U.S. 646, because of the importance of the matter in the administration of the Texas law and kindred conservation statutes.
been drilled with an irregular density. As a consequence, the more densely drilled tracts adjoining respondent's leases may, by virtue of their marginal allowances, produce oil in such quantities as to drain away respondent's reserves. Such is the basis for respondent's resistance to the order.
general scheme of the Texas statute is not challenged. Its constitutionality is here settled. Champlin Rfg. Co. v. Commission, 286 U. S. 210.
for fresh reminder that courts must not substitute their notions of expediency and fairness for those which have guided the agencies to whom the formulation and execution of policy have been entrusted.
tribunal, acting under legislative authority, offensive to the Fourteenth Amendment. Compare South Carolina Hwy. Dept. v. Barnwell Bros., 303 U. S. 177, 303 U. S. 191 et seq.
Equally enmeshed in a conflict of expertise is the claim, most vigorously urged by respondent, that, taken in connection with exceptions made by the Commission to its spacing rules and with the unrestricted twenty-barrel allowance to marginal wells, the proration order substantially places production on a flat per well basis. Such a result, according to respondent's claim as accepted by the lower courts, gives a constitutionally inadmissible advantage to smaller and more densely drilled tracts as against those owned by respondent. But this claim really presents a more specialized aspect of the general problem. In regulating flow of production, the treatment to be accorded to small and irregularly shaped tracts which do not fit neatly into the Commission's general scheme for spacing has presented a difficulty almost as great as the framing of proration formulas. Compare Walker, The Problem of the Small Tract under Spacing Regulations, 17 Tex.L.Rev. 157 (Supp.Bar Association Proceedings). To deny the holders of these tracts permission to drill might subject them to the risk of losing their oil in place or of being put at the mercy of adjoining holders. In many instances, therefore, the Commission has granted exceptions to its general spacing rule on the basis of which investments have been made and wells drilled. If these wells, most of them small, were restricted to production on the basis of an hourly potential formula, it might be unprofitable to operate them at all. Not only are the individual interests of these small operators involved, but their effect on the state's economy is an appropriate factor to be taken into account when plans are devised to keep the wells open.
A flat per well allowance to these producers was not an unnatural answer to the problem. Whether, as contended by the respondent, the maximum figure set by the Commission is too high in that it leads to the capture of oil from beneath its leases by neighboring operators, and whether a lower limit might suffice to assure profitable production -- these questions take us into that debatable territory which it is not the province of federal courts to enter. The record is redolent with familiar dogmatic assertions by experts equally confident of contradictory contentions. These touch matters of geography and geology and physics and engineering. No less is there conflict in the evidence as to the solidity of respondent's apprehension that there will be drainage of the oil beneath its surface by neighboring wells. The Commission's experts insist that the threat, if existent at all, is speculative, and that the Commission's power of continuous oversight is readily available for relief if real danger should arise in the future.
and subtle factors that must enter into such judgments, the Commission has observed established procedure. If the history of proration is any guide, the present order is but one more item in a continuous series of adjustments. It is not for the federal courts to supplant the Commission's judgment, even in the face of convincing proof that a different result would have been better.
"to compel those who may legally produce, because they have market outlets for permitted uses, to purchase gas from potential producers whom the statute prohibits from producing because they lack such a market for their possible product."
Thompson v. Consolidated Gas Co., 300 U. S. 55, 300 U. S. 69, 300 U. S. 77.
location upon the structure, of the porosity or permeability of the sand, of the estimated oil reserves, or of the acreage upon which the respective wells are situated. The worst property is raised to the level of the best, and the best is lowered to the level of the worst."
The court concluded that the order operated to appropriate, for the benefit of others, the respondent's oil without compensation.
The opinion of this court, in my judgment, announces principles with respect to the review of administrative action challenged under the due process clause directly contrary to those which have been established. A recent exposition of the applicable principles is found in the opinion of Mr. Justice Brandeis, written for a unanimous court, in Thompson v. Consolidated Gas Utilities Corp., 300 U. S. 55, dealing with a proration order affecting gas, entered by the same commission which entered the order here in issue. I think that adherence to the principles there stated requires the affirmance of the decree.
28 F.Supp. 131, 134, 135.

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