Case Name: The STATE OIL & GAS BOARD et al. v. MISSISSIPPI MINERAL & ROYALTY OWNERS ASSOCIATION et al.
Court: Mississippi Supreme Court
Jurisdiction: Mississippi
Decision Date: 1971-06-28
Citations: 258 So. 2d 767
Docket Number: No. 46265
Parties: The STATE OIL & GAS BOARD et al. v. MISSISSIPPI MINERAL & ROYALTY OWNERS ASSOCIATION et al.
Judges: GILLESPIE, P. J., and RODGERS, JONES, INZER, SMITH and ROBERTSON, JJ., concur.
Reporter: Southern Reporter, Second Series
Volume: 258
Pages: 767–792

Head Matter:
The STATE OIL & GAS BOARD et al. v. MISSISSIPPI MINERAL & ROYALTY OWNERS ASSOCIATION et al.
No. 46265.
Supreme Court of Mississippi.
June 28, 1971.
Dissenting Opinions Aug. 10, 1971.
Rehearing Denied March 6, 1972.
A. F. Summer, Atty. Gen., by Carl F. André, Asst. Atty. Gen., John M. Grower, Brunini, Everett, Grantham & Quin, Heidelberg, Woodliff & Franks, Jackson, Vernon L. Terrell, Jr., New Orleans, for appellants.
Michael R. Eubanks, Lumberton, Williams & Williams, Poplarville, for appel-lees.

Opinion:
PER CURIAM:
After due, legal and proper notice, and after a full hearing, the State Oil and Gas Board of Mississippi amended its Statewide Rules 7 and 8, widening and increasing the spacing pattern for oil and gas wells drilled below 12,000 feet and in the Pennsylvanian and older formations below a measured depth of 3500 feet, to a drilling unit of 80 acres for an oil well and a drilling unit of 640 acres for a gas well.
Issue was joined by the Mississippi Mineral and Royalty. Owners Association, which consists of several hundred members from all sections of Mississippi and a number of nonresidents who own oil, gas and minerals in the great majority of the producing fields in Mississippi and other mineral and royalty owners, in the Answer and Contest. On behalf of all of these protestants, the Association answered and contested the Petition of Shell Oil Company for wider spacing, and joined in all phases of the hearing before the Board.
The Association appealed from the Orders of the Board, amending Statewide Rules 7 and 8, to the Circuit Court of Pearl River County. Without opinion and in a short Order, the Circuit Court found that:
"[T]he decision and orders amending Statewide Rule No. 7 and Statewide Rule No. 8 are in error, and are contrary to law, and are not supported by substantial evidence and should be reversed."
The Court then proceeded to order and adjudge that:
"[Tjhis cause be, and the same is hereby, reversed, and the petitions of Shell Oil Company et al to amend Statewide Rules 7 and 8 be, and the same are hereby, denied and dismissed, with prejudice."
Shell Oil Company and others who joined in its petition, as well as the State Oil and Gas Board, thereupon appealed to this Court.
In discussing the duties, responsibilities and powers of the State Oil and Gas Board of Mississippi, this Court said, in Stack, Jr. et al. v. Harris, 242 So.2d 857 (Miss. 1971):
"The board is an arm of the state empowered by the legislature to prescribe rules and regulations for achieving in practice this policy of the state as announced in Section 1 of the Act and to enforce, maintain and carry out the said policy of the state." 242 So.2d at 860.
Section 1 of the Conservation Act referred to in Stack (Section 6132-01) Mississippi Code 1942 Annotated (Recomp. 1952), declares it to be in the public interests :
"[T]o foster, encourage and promote the development, production and utilization of the natural resources of oil and gas in the state of Mississippi; and to obtain, as soon as practicable, consistent with the prohibition of waste, the full development by progressive drilling of other wells in all producing pools of oil and gas or of all pools which may hereafter be brought into production of such, within the state, until such pool is fully defined."
In defining and enumerating broad and extensive powers of the State Oil and Gas Board, the Mississippi Legislature said:
"(c) The board shall have the authority, and it shall be its duty, to make, after notice and hearing as hereinafter provided, such reasonable rules, regulations and orders as may be necessary from time to time in the proper administration and enforcement of this act, and to amend the same after due notice and hearing, including, but not limited to rules, regulations and orders for the following purposes:
"(11) To regulate the spacing of wells and to establish drilling units." Miss. Code 1942 Annotated § 6132-10 (Supp. 1970).
We adopt as our own the excellent Opinion and Findings of the Board on the many issues of fact confronting it in this case, which Opinion and Findings are, as follows:
After due and proper notice, and after the docket had been continued for two terms, the matter of the amendment of Statewide Rules 7 and 8 came on for consideration this day.
Various proposals were made to the Board regarding the possible change in such rules. In the main, it was proposed that Statewide Rule 7 governing the spacing of oil wells be amended so as to provide for 80-acre spacing for wells producing from the deeper beds and to change Statewide Rule 8 to provide for spacing of 640 acres for each gas well producing from the deeper beds. A brief historical background of the oil and gas industry of the state insofar as the same relates to the spacing of oil and gas wells is as follows:
The first production of hydrocarbons discovered in the State of Mississippi was in the Amory and Jackson gas fields in the late 1920s, which were of limited significance. The first major discovery was in the year 1939 when the Tinsley Field was discovered, which over the years has been a highly prolific oil field producing primarily from the Selma Chalk and the Eutaw geological formations. In the area of the Tinsley Field these productive formations are encountered at a depth of approximately 4,700-5,500 feet. Subsequent to the discovery of the Tinsley Field, other significant Eutaw fields were discovered, including Heidelberg, Yellow Creek, Eucutta, and Pickens, all of which were productive from what is now considered to be shallow depths.
It then became apparent to the Legislature of the State of Mississippi that it was necessary to enact into law a workable conservation act; and as a result, the 1948 Session of the Legislature enacted the present Conservation Act which over the course of the years has been amended in only minor respects. This Act vested in the State Oil and Gas Board as then created the duty and obligation to promulgate such rules as were necessary for the proper administration of the oil and gas industry within the state and such as would conserve this natural resource.
Pursuant to such authority, in the year 1951 the Oil and Gas Board, after extensive hearings, adopted certain rules, two of which were Rules 7 and 8 which are here under consideration. In the year 1951 almost the whole of the production within the state was at a depth of 6,000 feet or less, the only exception being certain Tuscaloosa production in the southwest portion of the state. At that time the Board, according to some of its critics, arbitrarily set the spacing for oil wells at 40 acres and the spacing for gas wells at 320 acres. The Board then acted upon its best judgment based upon its own experience and the cumulative experience of all of the oil-producing states within the Union. The function of spacing is often misunderstood, the real purpose being to control well density and to prohibit the "bunching" of oil wells which results in waste and inequities. Therefore, the thing of primary importance is well density rather than the amount of surface acreage which is allotted to the production of one well bore, be it either oil or gas.
The spacing pattern of 40 acres for oil wells and 320 acres for gas wells has proved to be an effective spacing for the production of the shallower beds and resulted in a minimum of inequities. Following the adoption of this rule, unknown to many people who are presently interested in the oil and gas industry in the state, the state was the recipient of a rather widespread drilling program which resulted in the discovery of many fields, some of which are still productive and some of which will be productive for many years to come.
In the year 1951, when the present spacing rules were adopted, it was contended that a statewide spacing pattern could not be adopted because of the variations in the characteristics of the many reservoirs and that to do so would not be in protection of the co-equal and correlative rights of the owners in interest. It was also contended at that time that such a pattern was excessive in size.
In the year 1954, in the Soso Field of Jasper, Jones and Smith Counties, Mississippi, the production of oil was obtained from the Lower Cretaceous formation occurring in this field at the approximate depth of 12,000 feet. This discovery set off the second major cycle for the exploration of oil and gas in our state and resulted in the discovery of further productive reservoirs. Many of the reservoirs encountered at such deeper depths proved to be small in areal extent and in many instances having very limited reserves.
The limited reserves so encountered in many instances discouraged the development of such reservoirs because of excessive cost in drilling to and operating the deeper beds. It is at this point that economics became a major factor and of serious concern to those who were willing to invest the risk capital to develop this industry.
The Board was then asked to adopt wider spacing for certain fields, and the Board determined in many instances that the deeper reservoirs could be effectively and efficiently drained with less than one well per 40-acre unit. In almost every instance the deeper beds are under greater pressures and have reservoir characteristics which enable one well to drain an area in excess of 40 acres and a minimum of 80 acres.
In the year 1965 the Bay Springs Field was discovered, being the first field of significant proportions found in the Jurassic geological formations, which includes Cotton Valley, Smackover and Norphlet, all of which formations are now in production within the state. The Cotton Valley reservoir in the Bay Springs Field is productive from an approximate measured depth of 14,500 feet. This discovery again set off a major drilling cycle within the state, being the third such cycle. Most of the wells now being drilled, exclusive of the area of the state in which the Wilcox is productive, are drilled to depths sufficient to encounter the reservoirs above referred to and to depths ranging downward to 20,000 feet. The cost of such wells compared to the cost of wells necessary to penetrate the shallow beds is astronomical, and significant reserves must be encountered to pay the cost of such wells and the resulting operating costs in the event of production.
The Legislature saw fit in the preamble of the 1948 Conservation Act to impose upon the Board the duty of fostering and encouraging the development of oil and gas within the state. The Board, being cognizant of the multiplicity of problems involved in the production of the deeper beds and the cost necessary to produce such beds, is convinced that the same cannot be accomplished on the basis of the spacing rules adopted in the year 1951, when the complexion of the oil and gas industry within the state was totally different from that which now exists.
Because of such problems and pursuant to applications filed with the Board, twelve out of thirteen major discoveries in the Jurassic in the State of Mississippi are now on 80-acre spacing or larger. No application has been filed to date for 80-acre spacing on the remaining field producing from the Jurassic. This fact dictates to the Board the propriety of the development of the Jurassic on spacing greater than 40 acres. It is also significant to note that 80-acre spacing has been so granted almost without protest from either operators, royalty and mineral owners, or others.
Ample evidence was presented to the Board proving that the Jurassic reservoirs within the state can be efficiently and effectively drained on 80-acre spacing for oil wells and 640-acre spacing for gas wells. We do not consider it necessary to here set out such evidence in detail, but the record is amply clear on such evidence being before the Board.
It has been urged upon the Board that the Board cannot set a spacing pattern of 80 acres for oil wells and 640 acres for gas wells which will properly provide spacing for the entire state. We again refer back to the original statewide rules and again note that at the time 40-acre spacing was adopted for the production of oil wells and 320-acre spacing for the production of gas wells, the same contention was advanced.
It has also been urged upon the Board that in certain of the fields in the state producing from the deeper beds the 40-acre spacing pattern must be continued or else a portion of the reservoir would be developed on a 40-acre spacing and a portion thereof on 80-acre spacing. The Board has determined that if such situation exists, the same may be changed by the filing of a petition and application for an exception to the 80-acre rule. The Board has the same authority to make an exception so as to reduce the size of a unit as it does to enlarge the size of a unit.
It has also been urged upon the Board that a permit might be obtained to drill a well to a depth greater than 12,000 feet and that if production is encountered at a lesser depth the spacing of such a well would be 80 acres. The Board also finds this contention to be without merit, inasmuch as the production would have to be from the required depth or below in order for the 80-acre spacing for oil wells to apply or the 640-acre spacing for gas wells to apply.
It has also been urged upon the Board that Section 6132-21 is a regulation by the Legislature as to the size of drilling units. This portion of the existing law was enacted in the year 1956 and provides primarily for the location of wells as exceptions to the prescribed footage limitations and is in no wise a restriction upon the Board regarding the size of drilling units. Section 6132-103 of the Mississippi Code relates to what is commonly referred to as "forced unitization" of oil and gas reservoirs. Again this does not relate in any wise to the authority of the Board to fix the size of drilling units. The adoption of spacing rules by this Board does not in any wise amend such sections but is in furtherance of the obligation imposed by the original 1948 Conservation Act requiring the Board to adopt and promulgate such rules as will provide for the orderly production of oil and gas reservoirs within the state and which will fulfill its obligation to foster and encourage development within the state. The Board further finds that the spacing of 80 acres for oil wells and 640 acres for gas wells to the deeper beds will protect the co-equal and correlative rights of all owners in interest and further foster and encourage the development of the industry within the state.
It has been urged upon the . Board to provide for such wider spacing for all wells drilled below a depth of 10,000 feet and to all wells drilled to the Pennsylvanian or older ages. Production from Pennsylvanian and older ages encountered within the state have been to date in only the Black Warrior Basin which is generally located in the northeast portion of the state. Because of the regional dip such formations are encountered at varying depths, becoming shallower in the northern regions of this portion of the state. The Black Warrior Basin is also referred to as the "hard rock" area of the state, and it is extremely difficult and costly to drill a well in this area. Because of these matters and the apparent ability of a productive well to drain a large area, the Board is of the opinion that wider spacing should apply to the Pennsylvanian and older ages where drilled to a depth of 3,500 feet or deeper. The Board is of the opinion that it is not necessary to provide for wider spacing for wells drilled to a subsea depth of 10,000 feet or greater, but is of the opinion that it is in the best interests of the industry, the State of Mississippi and all owners in interest for such wider spacing to apply to depths of 12,000 feet or greater.
The Board therefore finds that Statewide Rules 7 and 8 should be amended in accordance with the findings of this Board as hereinbefore set forth.
We said in Superior Oil Company v. State Oil and Gas Board, 220 So.2d 602 (Miss. 1969):
"Moreover, the Board is not bound to adhere to a strata definition made sixteen years earlier when the facts now reflect new data and different requirements." 220 So.2d at 604.
The standard for a judicial review of the orders of the State Oil and Gas Board has been settled since 1946. In the recent case of Masonite Corporation v. State Oil and Gas Board, 240 So.2d 446 (Miss. 1970) we reiterated, restated and reaffirmed that standard in these words:
"Suffice it to say that the standard in this state for judicial review of the order of the State Oil & Gas Board is well settled. In Superior Oil Co. v. State Oil & Gas Board, 220 So.2d 602 (Miss.1969), we restated the rule first announced in California Co. v. State Oil & Gas Board, 200 Miss. 824, 27 So.2d 542 (1946), and it is as follows:
" 'The standard for judicial review of orders of the State Oil and Gas Board is whether the order is supported by substantial evidence, is arbitrary or capricious, beyond the power of the Board to make, or violates some constitutional right of the complaining party. (200 Miss, at 842, 27 So.2d at 546)."' 240 So.2d at 448.
There is substantial evidence supporting the Orders of the Board in this case, its Orders are not arbitrary or capricious, nor are they beyond the power of the Board to make, nor do they violate any constitutional right of any complaining party. The Circuit Court was in error in reversing the Orders of the State Oil and Gas Board amending Statewide Rules 7 and 8 and in denying and dismissing the Petition of Shell Oil Company et al. to amend Statewide Rules 7 and 8.
The Order of the Circuit Court is reversed and the Orders of the State Oil and Gas Board amending Statewide Rules 7 and 8 are reinstated.
Judgment reversed and orders of the State Oil and Gas Board reinstated.
GILLESPIE, P. J., and RODGERS, JONES, INZER, SMITH and ROBERTSON, JJ., concur.
BRADY and PATTERSON, JJ., dissent.
ETHRIDGE, C. J., took no part.