Case Name: Railroad Commission of Texas et al v. Sterling Oil and Refining Company et al.
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1949-02-16
Citations: 147 Tex. 547
Docket Number: No. A-1969
Parties: Railroad Commission of Texas et al v. Sterling Oil and Refining Company et al.
Judges: 
Reporter: Texas Reports
Volume: 147
Pages: 547–571

Head Matter:
Railroad Commission of Texas et al v. Sterling Oil and Refining Company et al.
No. A-1969.
Decided February 16, 1949.
Rehearing overruled March 30, 1949.
(218 S. W., 2d Series, 415.)
Prince Daniel, Attorney General, Fagan Dickson, Charles D. Matheios and Elton M. Ryder, Jr., Assistants Attorney General, and Joe Greenhill, Executive Assistant Attorney General, for appellant, Railroad Commission of Texas.
There having been substantial evidence introduced to show that the flare-gas order for the Heyser oil filed to be valid as a matter of law, reasonable and just, and its enforcement feasible and practicable, it was error for the trial court to hold said order invalid, and to grant a permanent injunction restraining its enforcement. Ohio Oil Co. v. Indiana, 177 U. S. 190; Railroad Commission v. Shell Oil Company, 146 Texas 286, 206 S. W. (2d) 235; Travelers Ins. Co. v. Marshall, 124 Texas 45, 76 S. W. (2d) 1007; Henderson Co. v. Thompson, 300 U. S. 258.
Walace Hawkins, Raymond Myers, J. W. Timmins, Martin A. Row, all of Dallas, Paul A. McDermott and Eugene T. Adair, both of Fort Worth, M. D. Kirk, of Tulsa, Okla, Ellis Chaney, Jr., of San Antonio, Ireland Graves, J. A. Hauhut, James II. Rogers, Graves and Dougherty, Powell, Wirtz & Rauhut, all of Austin, Archie D. Gray, Joe S. Brown, Elston R. Law, E. E. Townes, W. B. Browder, Jr., Rex. G. Baker, Nelson Jones, and Vinson, Elkins, Weeks & Francis, all of Houston, for appellees.
The Commission cannot lawfully prevent a use which has been sanctioned by the Legislature; nor can it select one of the uses approved by the Legislature and require appellees to devote their gas to such use to the exclusion of all other uses approved by it; and as the Commission has no lawful authority except that conferred upon it by the Legislature and the four uses specified by the Commission being exclusive, the trial court properely granted a permanent injunction to restrain the enforcement of the order in suit because the commission was without lawful authority to enforce said order. Brown v. Humble Oil and Refining Co., 126 Texas 296, 83 S. W. (2d) 935, 87 S. W. (2d) 1069; Clymore Prod. Co. v. Thompson, 13 Fed. Supl. 469 (Fed. Dist. Ct.-Texas) Tidewater Assn. Oil Co. v. Clements, 123 S. W. (2d) 780; Missouri, K. & T. Ry. Co. v. State, 100 Texas 420, 100 S. W. 766.

Opinion:
Mr. Justice Sharp
delivered the opinion of the Court.
This is a direct appeal from the judgment entered December 2, 1948, by the 98th District Court of Travis County, declaring invalid an order promulgated by the Railroad Commission on November 22, 1948, and enjoining the Railroad Commission from enforcing the order. The order prohibited the production of either oil or gas form the Heyser Field unless and until all of the gas produced incident to such production is made available for one or more of the lawful uses as set out in Subsection 1 of Section 7, Article 6008, Title 102, of the Civil Stat utes of this State, which lawful uses, as therein set out, are as follows:
"(a) Light or fuel.
" (b) Efficient chemical manufacturing, other than the manufacture of carbon black,
"(c) Bona fide introduction of gas into oil, or gas bearing horizon, in order to maintain or increase the rock pressure or otherewise increase the ultimate recovery of oil or gas from such horizon.
"(d) The extraction of natural gasoline therefrom when the residue is returned to the horizon from which it is produced."
The order was to become effective as of 7:00 a. m., December 1, 1948.
Suit was brought by Sterling Oil & Refining Company and a number of other Heyser Field producers, and it was alleged, among other things, that the order was illegal, unjust, unreasonable, arbitrary, and discriminatory, in that the Commission had no statutory authority to promulgate and enforce it; that compliance with the order - within the time set by the Commission was a physical impossibility; that irreparable damage would be done to those wells in the field which have a water drive if they were shut in until the order could be complied with; that the order discriminates against this field in favor of other fields which are not shut down; that some of the leases are being kept in force by production only and might be jeopardized by the enforcement of the order; and that, in view of the fact that the residue gas in this field has been flared since 1938, of which fact the Commission is apprised, and the future fact that some of the producers in the field have made efforts to obtain a market for the gas which is now being flared, the order is unjust, unreasonable, and arbitrary. The trial court held that the order was invalid, and permanently enjoined the Railroad Commission from enforcing the order.
The appeal of the Railroad Commission is predicated upon Section 3-b of Article V of the Texas Constitution, Article 1738a of Vernon's Texas Statutes 1948, and Rule 499a of Texas Rules of Civil Procedure. The Railroad Commission contends that the judgment of the trial court was improper and unwarranted, in that the order of the Commission was reasonably supported by substantial evidence, and it is valid as a matter of law.
Appellees filed their motion to dismiss this appeal, and it is urged that this Court is without jurisdiction to decide the cause on direct appeal. The motion is based upon two grounds. (1) That the constitutional provision cited above gives jurisdiction to this Court only in cases involving the "constitutional validity" of certain laws and orders, and in this case the order is challenged on other than constitutional grounds; and (2) that the direct appeal may not be maintaineed under Rule 499a of Texas Rules of Civil Procedure, because it necessitates the bringing to this Court of a statement of facts for purposes other than those provided for in the rule.
Section 3-b of Article V of the Constitution reads as follows:
"The Legislature shall have the power to provide by law, for an appeal direct to the Supreme Court of this State from an order of any trial court granting or denying an interlocutory or permanent injunction on the grounds of the constitutionality or unconstitutionality of any statute of this State, or on the validity or invalidity of any administrative order issued by any state agency under any statute of this State."
Pursuant to the adoption of Section 3-b of Article V of the Constitution and the enactment by the Legislature of Article 1738a of Vernon's Texas Statutes 1948, Rule 499a of the Texas Rules of Civil Procedure was promulgated by this Court. The pertinent parts of Rule 499a read as follows:
"(a) In view of Section 3 of Article 5 of the Constitution which .confines the appellate jurisdiction of the Supreme Court to questions of law only, this court under the present and later amendment, above cited, has and will take appellate jurisdiction over questions of law only, .
"(b) An appeal to the Supreme Court directly from such a trial court may present only the constitutionality or unconstitutionality of a statute of this State, or the validity or invalidity of an administrative order issued by a state board or commission under a statute of this State, when the same shall have arisen by reason of the order of a trial court granting or denying an interelocutory or permanent injunction.
"(c) Such appeal shall be in lieu of an appeal to the Court of Civil Appeals and shall be upon such question or questions of law only, and a statement of facts shall not be brought up except to such extent as may be necessary to show that the appellant has an interest in the subject matter of the appeal and to show the proof concerning the promulgation of any ad ministrative order that may be involved in the appeal. If the case involves the determination of any contested issue of fact, even though the contested evidence should be adduced as to constitutionality or unconstitutionality of a statute, or as to the validity or invalidity of an administrative order, neither the statute or statutes, above mentioned, nor these rules, apply, and such an appeal will be dismissed."
A similar order of the Railroad Commission was involved in the case of Railroad Commission v. Shell Oil Co., Inc., 146 Texas 286, 206 S. W. (2d) 235 (known as the Seeligson case), and a direct appeal was taken from the judgment of the trial court to the Supreme Court. A motion to dismiss the appeal was based on the ground that this Court did not have jurisdiction of the case. This Court in an exhaustive opinion reviewed the provisions of the Constitution, the Articles of the Statutes, and Rule 499a, and held that this Court did have jurisdiction of the case.
This Court has held that the Legislature has clothed the Railroad Commission with special poweres to perform special functions relating to oil and gas, and in reviewing the evidence forming the basis for the type of order under consideration no question of the preponderance of the evidence is involved. In passing upon an order of this kind by the Railroad Commission, the rule is announced that it is a question of law as to whether or not the order is reasonably supported by substantial evidence, and the Supreme Court has jurisdiction to consider the record involved in the case and pass upon the validity of the order. Thomas v. Stanolind Oil & Gas Co., 145 Texas 270, 198, S. W. 420; Trapp v. Shell Oil Company, Inc., 145 Texas 323, 198 S. W. (2d) 424; Hawkins v. Texas Company, 146 Texas 511, 209 S. W. (2d) 338; Wrather v. Humble Oil & Refining Co., 147 Texas 144, 214 S. W. (2d) 112; Railroad Commission v. Humble Oil & Refining Co., Tex. Civ. App., writ refused, 193 S. W. (2d) 824. In this case the record of the proceedings in the trial court, including the statement of facts, is before us, and in considering the record as to whether there is any substantial evidence reasonably to support the order in the case we are passing upon a question of law, and are not determining a contested issue of fact, and in doing so Rule 499a is not violated. Therefore the motion to dismiss the appeal is overruled.
It is further urged by appellees that the information or data printed on the ballot was too indefinite to apprise voters of the purpose of Section 3-b of Article V. The ballot contained the following statements:
"FOR THE AMENDMENT TO THE CONSTITUTION OF THE STATE OF TEXAS AUTHORIZING THE LEGISLATURE TO PROVIDE FOR APPEALS DIRECT TO THE SUPREME COURT IN INSTANCES INVOLVING THE CONSTITUTIONALITY OF CERTAIN LAWS AND ORDERS."
"AGAINST THE AMENDMENT TO THE CONSTITUTION OF THE STATE OF TEXAS AUTHORIZING THE LEGISLATURE TO PROVIDE FOR APPEALS DIRECT TO THE SUPREME COURT IN INSTANCES INVOLVING THE CONSTITUTIONALITY OF CERTAIN LAWS AND ORDERS."
Article XVII of the Constitution provides the method by which amendments to the Constitution are to be adopted. That article provides that, "The Legislature may proposé amendments to the Constitution, to be voted upon by the qualified electors which proposed amendments shall be duly published once a week for four weeks, commencing at least three months before an election, the time of which shall be specified by the Legislature, in one weekly newspaper of each county, in which such a newspaper may be published, ." There is no contention made that this provision of the Constitution was not complied with.
The Constitution requires that certain publicity shall be given a proposed amendment prior to an election. This is done to identify the amendment and to show its character and purposes, so that the voters will be familiar with the amendment and its purposes when they cast their ballos. In many instances it would be impracticable to print an entire amendment on a ballot, and the method adopted in submitting the amendment under consideration was similar to that used in submitting many other amendments in the past. The method used in this instance was sufficient. See Whiteside v. Brown, Tex. Civ. App., 214 S. W. (2d) 844; writ dismissed w. o. j., Fellows v. Eastman, 126 Maine 147, 136 Atl. 810; Cudihee v. Phelps, 76 Wash. 314, 136 Pac. 367; Cooney v. Foote, 142 Ga. 647, 83 S. E. 537, Ann. Cas. 1916B, 1001; State v. Osbourne, 153 Ore. 484, 57 Pac. (2d) 1083; Russell v. Croy, 164 Mo. 69, 63 S. W. 849; Fleming v. Royall, 145 S. C. 438, 143 S. E. 162; City of Jackson v. Mims, 316 Mich. 694, 26 N. W. (2d) 569; Lovett v. Ferguson, 10 S. D. 44, 71 N. W. 765; State ex rel. Harry L. Hussman Refrigerator & Supply Co. v. City of St. Louis, 319 Mo. 497, 5 S. W. (2d) 1080; State ex rel. Thompson v. Winnett, 78 Neb. 319, 110 N. W. 1113, 10 L. R. A. (N. S.) 149, 15 Ann. Cas. 781; 29 C. J. S. 245, Elections, sec. 170, 18 Am. Jur. 298, Elections, sec. 180.
We do not think that it would be sound to permit the ballot form to have the effect of limiting the natural meaning of the language of the amendment itself. The contention that the ballot insufficiently described the amendment is also overruled.
The principal question for determination here is whether the flare-gas order of the Railroad Commission was fair and reasonable and reasonably supported by substantial evidence. We must also decide whether the trial court erred in striking down the order for the Heyser Field and in granting a permanent injunction restraining the enforcement of the order.
In 1917 Section 59-a of Article XVI of the Constitution of Texas was adopted. By its provisions it requires the Legislature to "pass all such laws as may be appropriate [to] the conservation and development of all the natural resources of this State." Oil and gas are natural resources of this State.
The basis for the power of the Railroad Commission is found in the Act of the Legislature, Title 102, Article 6004 et seq., Vernon's Texas Statutes, 1948. The Legislature has many times amended the statutes so as to define in plain and specific language the public policy of this State with respect to the conservation of oil and gas and to prevent their waste. The duty to enforce these statutes is placed on the Railroad Commission. The Legislature realized the great value of oil and gas and the importance of the task and duty placed on the Railroad Commission to conserve same for the use of the public, and by many provisions of the statutes full power is given the Railroad Commission to prevent the waste of oil and gas. In addition to the other articles embraced in Title 102 delegating power to the Railroad Commission to prevent waste of oil and gas, Article 6029 also prescribes the purposes for which "the Commission shall make and enforce rules, regulations or orders for the conservation of crude petroleum oil and natural gas and to prevent waste thereof." In addition to the other purposes described in Article 6029, Section 8 thereof further enlarges the power of the Commission, and reads as follows:
"It shall do all things necessary for the conservation of crude petroleum oil and natural gas and to prevent the waste thereof, and shall make and enforce such rules, regulations or orders as may be necessary to that end."
Many provisions of our oil and gas statutes have been construed by this Court, and it has been held that the Commission has the authority to prescribe fair and reasonable rules to prevent the waste of oil and gas. See Railroad Commission v. Shell Oil Co., Inc., 146 Texas 286, 206 S. W. (2d) 235; Brown v. Humble Oil & Refining Co., 126 Texas 296, 83 S. W. (2d) 935, 87 S. W. (2d) 1069, 99 A. L. R. 1107, 101 A. L. R. 1393; Corzelius v. Harrell, 143 Texas 509, 186 S. W. (2d) 961; Trapp v. Shell Oil Co., Inc., 145 Texas 323, 198 S. W. (2d) 424; Thomas v. Stanolind Oil & Gas Co., 145 Texas 270, 198 S .W. (2d) 420; Gulf Land Co. v. Atlantic Refining Co., 134 Texas 59, 131 S. W. (2d) 73.
The Heyser Field is located in Calhoun and Victoria counties, and was discovered in 1936. In 1938 a gasoline plant was erected by two of the appellees, producers in this field, and this plant has been operated continuously since that time. The purpose of the plant is to extract from the casinghead gas, used to lift the oil to the surface, the liquid hydrocarbons, and primarily to manufacture natural gasoline therefrom. This process, in addition to the gas used as plant fuel and lease fuel, results in the consumption of about five per cent, of the total chemical contents of the casinghead gas produced at the well head. The residue gas, that which remains after the extraction process is completed, leaves the plant as a tail gate by-product, and is flared. Thus approximately 95 per cent, of the casinghead gas produced along with the production of oil in the Heyser Field is rendered absolutely useless by flaring.
There is no dispute regarding the fact that all the residue gas from the natural gasoline plant in the Heyser Field is flared, and this amounts to approximately twenty-one million cubic feet a day. A gas pipeline belonging to the Tennessee Gas Transmission Company, and extending from Hidalgo County, Texas, to West Virgina, passes within eight miles of the Heyser Field. In September, 1945, the operators in this field began negotiations with the Tennessee Gas Transmission Company with a view of getting it to buy the residue gas from the gasoline plant. A hearing was held in November, 1945, at the request of the Railroad Commission, concerning the gas then being flared in the Heyser Field, and a committee was appointed to study the situation and make recommendations. A second hearing, to determine the extent of progress made in the elemination of flaring casinghead gas, was held in February, 1946.
On April 3, 1946, the Tennessee Gas Transmission Company agreed to lay a pipeline from its compressor station in Victoria County to the Heyser Field, and to take all the residue gas; provided that the operators would install compressors at the field to raise the pressure of the residue gas to 800 pounds, so that it would enter the pipeline. This agreement was never consummated, as the compressors were not installed, due to differences among the operators in the field.
In March, 1947, another hearing was held by the Railroad Commission concerning the flaring of casinghead gas. At this hearing, as at the other hearings, the Railroad Commission notified the operators that it intended to take action to prevent the flaring of casinghead gas. At each of the hearings the operators represented to the Commission that they would soon be able to reach an agreement.
In April, 1948, the compressors which were necessary to raise the pressure of the residue gas were ordered. During all this time the Tennessee Gas Transmission Company considered itself committed to take the residue gas under the terms of its original offer. The Railroad Commission finally gave notice to the operators to show cause on October 26, 1948, why the casing-head gas which was being flared should not be utilized or diverted to legal use. This led to the promulgation of the order of the Railroad Commission which is the basis of this suit. Now the operators state that the facilities for placing the residue gas in the pipeline of the Tennessee Gas Transmission Company will be ready by April, 1949.
The Legislature in definite and specific language has declared that all waste of oil or gas is unlawful and is prohibited. In Article 6014 it has specifically prohibited "surface waste" of oil and gas "without beneficial use." In Article 6008, sec. 6, the power is delegated to the Railroad Commission to make rules, regulations, and orders to prevent such waste, and this necessarily includes the power to define "beneficial use" as used in Section (h) of Article 6014. Article 6014 further provided: "The Commission may consider any or all of the above definitions, whenever the facts, circumstances or conditions make them applicable, in making rules, regulations or orders to prevent waste of oil or gas." Unquestionably the Legislature intended to clothe the Railroad Commission with the power to determine what constitutes waste under the facts. This authority is broad enough to include "sweet gas," "casinghead gas," and "residue gas." In this instance the Railroad Commission determined that the flaring of the gas in the Heyser Field was waste, and ordered it stopped.
Appellees attack the order on the ground that it prohibits other lawful intermediate and end uses of the gas, and specie-ally mentions uses for gas lift and the manufacture of natural gasoline. Appellants point out that the order does not prohibit any lawful intermediate uses prior to final disposal of the gas, and that it does not limit use for gasoline extraction or manufacture only to instances wherein the residue is returned to the horizon from which produced. The four permissible end uses specifically set out in the order are followed by clear language that any combination of one or more of the uses may be made, and therefore gas may be used for extraction or manufacture of natural gasoline and the residue either returned to the horizon or used for light, fuel, etc. Appellants further contend that this is the construction placed upon similar "end use" statutes and orders of the Railroad Commission for many years. In order to clarify the position of the Railroad Commission on this order, we quote the pertinent portions of an order promulgated by it on January 17, 1949:
"it is therefore ordered, by the railroad commission of Texas that the following interpretations of flare-gas operating orders be and they are hereby promulgated to clearly state the construction which the Commission has in the past and will in the future place thereon:
"1. The specific uses set out therein have been and are considered as required 'end' uses and are not intended and do not prevent any lawful and beneficial intermediate uses prior to final disposition of the gas. Such permissible intermediate uses include gas lift and processing for manufacture of natural gasoline, as well as utilization of any portion thereof for the manufacture of natural gasoline.
"2. Extraction and manufacture of gasoline is not limited by paragraph (d) of the orders to gas from which the residue is returned to the horizon from which produced, but extraction and manufacture of natural gasoline are permitted when the final disposition of the gas. Such permissible intermediate uses residue is either returned to the horizon or devoted to any of the other end uses; such as light and fuel. This is specifically permitted by that portion of the orders which clearly states that the intent is to require utilization 'for one or more of the purposes above set out.' A combination use for extrae tion or manufacture of natural gasoline "and light, fuel, or any other of such end uses may be made instead of returning residue gas to the horizon from which produced.
"These interpretations have been generally understood and applied in previous orders and are the same which applied to an identical order in the Seeligson Field which was upheld by the Supreme Court of Texas as being within the power of the Commission. These intermediate and combined uses are not only within the contemplation of such orders but have been and will be encouraged as compliance therewith for the purpose of actually using and conserving gas and preventing unnecessary and excessive waste."
Appellees misconstrue the order of the Railroad Commission relating to the flaring of gas in the Heyser Field. It is quite clear that the Railroad Commission, in the exercise of its duty as prescribed by the statutes, was trying to prevent waste in the flaring of gas. The Railroad Commission is not required to establish a rule that is absolutely perfect. Its members were dealing with a complex problem concerning .the Heyser Field, and the Commission's order must be considered from a reasonable and practical standpoint, and it is sufficient if it treats all interested parties justly and impartially. The actions and rulings of the Railroad Commission in attempting to accomplish such results "will not be disturbed by the courts unless such rules or orders are clearly illegal, unreasonable or arbitrary." Corzelius v. Harrell, 143 Texas 509, 186 S. W. (2d) 961, and cases cited; Railroad Commission v. Shell Oil Co., Inc., 146 Texas 286, 206 S. W. (2d) 235.
Appellees also contend that the order is unreasonable, arbitrary, and discrimnatory, and that it is impossible to comply with the order within the time fixed therein. They state that the order can be complied with by April 1, 1949, but to enforce it before that time would cause irreparable damage and loss to some operators in the Heyser Field. It is undisputed that a great volume of this gas is destroyed daily. The testimony set out above shows that through the years past the efforts of the Railroad Commission have been to prevent further unnecessary waste of this valuable natural resource. Furthermore, the Commission has indicated its willingness to hear the plea of any operator whose property would be damaged by the enforcement of such an order. To prove that appellees' apprehensions are not justified, when considered in the light of the testimony introduced, we quote from the testimony of members of the Railroad Commission the following:
Commissioner Murray testified as follows:
"Q. Now Commissioner, as a petroleum engineer, I want to ask you about whether there would be any waste occasioned by ceasing to produce this field for a limited time, until the operators could comply with this flare gas order, and if so, how much waste and how and why would it occur?
"A. There possibly would be some wells which because of mechanical conditions would have things happen to them as a result of being shut down and which could cause an expenditure of money to bring them back on production. Wells that are producing a large quantity of water and making a good deal of sand would what is called sand-up. Now it is my opinion that had compliance with this order been adhered to, and the operators of such wells that were in such mechanical condition as would be damaged by shutting them in, could have come to the Commission and shown these factors and those wells would have been excused from compliance with the shut-down provisions."
Commissioner Thompson testified as follows:
"Q. Colonel, there has been some testimony here about edge wells and the probability that some of them would be affected by closing in of a field. I will ask you whether or not the Commission is open to receive applications for special treatment in any particular wells?
"A. That is standard operating procedure with us. We leave each order open at the bottom, 'this docket is kept open for further and additional orders in this cause' and upon application by any party showing his well would be irreparably injured, the Commission has always granted relief and has exempted such well from the shut-down, perhaps erring on the side of being too liberal. I cannot recall of any instance where we have failed to give relief where the showing was made that closing the well in, would permanently injure the well or the property.
"Q. And in such an event, you would entertain such an application, would you not?
"A. Not only entertain it, but grant it and be on the side of caution, rather than too tight. Our whole fault all along is being too liberal in our administration."
It clearly appears from this record that the Commission is trying to carry out the mandate of the Legislature and pre vent the waste of a very valuable and important natural resource, and in doing so that it will not willfully act in a tyrannical or arbitrary manner. Its members show an inclination to co-operate with the operators in preventing waste, and if a bona fide effort is made to comply with an order of the Commission, the Commission will not be unreasonable, and will make exceptions to prevent unnecessary damage or loss to the operators. If this gas, which is an important natural resource, is to be conserved, some action is necessary to prevent its further unnecessary waste. It will be too late to speculate on what to do when the gas is exhausted through waste.
This Court has held that each oil field presents a separate problem. This Court is here passing only on the order relating to the Heyser Field, and the decision in this case does not prejudge the issues that may be involved in other fields.
We hold that the order of the Railroad Commission in this case is reasonably supported by substantial evidence, and that it is valid. We further hold that the order is not discriminatory, unreasonable, or arbitrary, and it is affirmed. The judgment of the trial court is reversed, and the injunction restraining the enforcement of the order under consideration is dissolved.
Opinion delivered February 16, 1949.