Opinion ID: 2429351
Heading Depth: 2
Heading Rank: 4

Heading: effective date of mipa fnal order

Text: We next consider whether the commission may enter a final order in a MIPA proceeding that establishes an effective date which is coincident with the date of an earlier interim order entered in the same proceeding. Article I, section 16 of the Texas Constitution provides: No bill of attainder, ex post facto law, retroactive law, or any law impairing the obligation of contracts, shall be made. A retroactive law is one that affects acts or rights which accrued before it became effective. See Inman v. Railroad Comm'n, 478 S.W.2d 124, 129 (Tex.Civ.App.Austin 1972, writ ref'd n.r.e.). The effective date of a forcepooling order entered by the Railroad Commission that is earlier than the date the order is signed can be an unconstitutional, retroactive interference with vested property rights. Buttes Resources Co. v. Railroad Comm'n, 732 S.W.2d 675, 682 (Tex. App.Houston [14th Dist] 1987, writ ref'd n.r.e.); American Operating Co. v. Railroad Comm'n, 744 S.W.2d 149, 156 (Tex. App.Houston [14th Dist.] 1987, writ denied). This is because a retroactive pooling order may interfere with existing unit interest owners' property rights in production, and the proceeds therefrom, that have vested before pooling. The proceeds from such production, produced in compliance with then-existing commission rules and regulations, may have since been disbursed among the various interest owners. A retroactive pooling order, then, interferes with these vested rights by modifying the ownership of production that has been collected, sold and the proceeds remitted to interest owners under then current commission orders. On the other hand, the problem with making a pooling order prospective only is that a pooling applicant's lands are being drained during the inevitable lag from an application for a force pooling order to the final order. To rectify this situation and avoid the proscriptions of Buttes and American Operating, the commission has adopted the practice of issuing an interim order if it appears that the pooling application has merit. These interim orders require the operator of the existing unit to escrow the proceeds that would belong to the successful pooling applicant if the parties were force pooled. 3 Smith & Weaver § 12.5(B)(3), at 52. Theoretically, if the amount escrowed is equal to or exceeds the interest due the successful pooling applicant after the final order is entered, there is no impairment of vested rights. However, if the amount escrowed is less than the amount owing to the successful pooling applicant, a constitutional issue arises because the past production has already vested in, and the proceeds remitted to, the existing interest owners. Here, the court of appeals held that application of the final MIPA order between September 9, 1985 and August 24, 1987, contradicted the rule established by Buttes and American Operating. A key factor in the court's decision was that the final order in the productive acreage hearings changed the method of calculating allowables. This change, the court of appeals reasoned, meant that there was no longer any extra allowable provided for Pend Oreille to escrow on Forney's behalf. Because the final order in the productive acreage hearings did not provide for any new, supplementary allowable, the court reasoned that the retroactive effective date of the final MIPA order interfered with Pend Oreille's vested property rights. Moreover, the court placed upon Forney the burden of obtaining either a modification of the interim order or an additional allowable under the final productive acreage hearing order. The court of appeals wrote that if any party had an obligation to either seek modification of the interim order or request that an additional allowable be provided for in the final [productive acreage hearings] order, it was Forney. 788 S.W.2d at 886. We hold that the court of appeals erred in concluding that the effective date of the final MIPA order is unconstitutionally retroactive because, after September 9, 1985, Pend Oreille was no longer receiving a supplementary allowable. The court arrived at this erroneous conclusion by treating allowables as if they are vested property rights. Operators do not have a vested property right in assigned monthly allowables. Railroad Comm'n v. Aluminum Co. of Am., 380 S.W.2d 599, 602 (Tex.1964); Chenoweth v. Railroad Comm'n, 184 S.W.2d 711, 715 (Tex.Civ.App.Austin 1944, writ ref'd w.o.m.); F.A. Gillespie & Sons Co. v. Railroad Comm'n, 161 S.W.2d 159, 162 (Tex.Civ.App.Austin 1942, writ ref'd w.o.m.). Pend Oreille was not entitled to the supplementary allowable as a matter of right. Because allowables are not vested property rights, the final pooling order is not necessarily unconstitutional, unless some other vested right was interfered with by the September 9, 1985, final order. The parties agree that Pend Oreille has a vested property right in its fair share of the production from the Bennett Well. See, e.g., Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 167, 254 S.W. 290, 292 (1923). Although Pend Oreille has a vested property right in its fair share of the oil and gas in place under its lease in the Bennett Gas Unit, this right is subject to state regulation. See, e.g., Brown v. Humble Oil & Gas Ref. Co., 126 Tex. 296, 309-10, 83 S.W.2d 935, 942 (1935). The legislature, pursuant to its police power, may enact laws that promote conservation of this State's oil and gas reserves by preventing waste and protecting correlative rights. Id. The legislature may delegate this authority to the Railroad Commission. Id. at 301, 83 S.W.2d at 938. However, the commission may not exercise the powers delegated to it in an unreasonable, arbitrary or oppressive manner. See id. at 311, 83 S.W.2d at 943. In this case, the commission exercised its delegated authority by issuing the MIPA interim order to protect the correlative rights of both Pend Oreille and Forney. If the effectiveness of the interim order was abrogated by the entry of the final order in the productive acreage hearings and, as a consequence, arbitrarily took from Pend Oreille its fair share of the production already produced (or the proceeds therefrom), then the final MIPA order relating back to the interim order is, arguably, unconstitutional. We do not reach this question, however, because we hold that Pend Oreille is estopped to complain about the retroactive effective date of the final MIPA order. The interim order expressly stated that a final MIPA order would supersede it. The parties were on notice that the commission was contemplating the entry of a pooling order and that the date of the final order would be made effective to the date of the interim order. All the parties understood this and agreed to it, at least initially. Notwithstanding the reasonable expectations of the parties and the commission order, Pend Oreille unilaterally stopped paying production proceeds into escrow. Pend Oreille says it did so because the interim order no longer was operative once the final order was entered in the productive acreage hearings. It does not follow, however, that an order in another docket that conflicts with the escrow provisions of an interim order somehow makes the interim order a nullity. The interim order was still enforceable. By its own terms, the interim order could not have been superseded except by the entry of a final judgment in that same proceeding. It follows that the commission intended this order to remain in effect pending its final determination. A final order in a different proceeding could not abrogate it, unless the interim order said so. But cf. Big Three Indus., Inc. v. Railroad Comm'n, 618 S.W.2d 543, 548 (Tex. 1981) (final order entered by Railroad Commission in one docket rendered order in separate commission docket likewise final). The commission in this case clearly expected that Pend Oreille would continue to escrow some production proceeds throughout the entire interim period. The commission entered the interim order to protect both Pend Oreille's and Forney's correlative rights. Pend Oreille stopped paying the proceeds of production into escrow because it thought its vested rights were being impaired. But, the escrow provision of the commission's interim order was designed to protect Forney's rights as well as Pend Oreille's. Pend Oreille could, and should, have applied for a modification of the interim order. See Tex.R.R.Comm'n, 16 Tex.Admin.Code § 1.77 (West Sept. 1, 1988). The court of appeals placed the burden of obtaining a modification upon Forney, because it was the party seeking relief. 788 S.W.2d at 886. But, it is unreasonable to place the burden on Forney to determine whether a well operator is unilaterally disregarding a commission order and then seek a modification. The burden to obtain a modification should have been placed on Pend Oreille because it was in the better position to know whether its vested rights might be interfered with, and could have taken action accordingly. Normally, it is the well operator who has the responsibility for providing to the commission that information which is necessary to determine and protect allocation of well allowables within a field. See 16 Tex.Admin.Code § 3.31 (Gas Well Allowables). We conclude that Pend Oreille had the duty to obtain any modification of the interim order necessary to protect any vested rights that might have been interfered with by the entry of the final order in the productive acreage hearing. To the extent that there is any interference, Pend Oreille will not be heard to complain, because it could have sought a modification. We hold that the Railroad Commission's final order in the MIPA proceeding is proper and may have an effective date earlier than the date of the entry of the final judgment in that docket. Therefore, in conclusion, we affirm the court of appeals' judgment in part and reverse in part. Concurring opinion by MAUZY, J.