Opinion ID: 1673705
Heading Depth: 1
Heading Rank: 3

Heading: Order Designating Spacing Pattern

Text: The Lubkes assert that the order of the Commission is not sustained by substantial or credible evidence. Only that part of the order relating to the spacing pattern is seriously contested. The Commission is charged with the authority to set spacing units [w]hen necessary to ... protect correlative rights. [4] § 38-08-07, N.D.C.C. [5] This power is a continuing duty. §§ 38-08-07(4) and 38-08-09.2, N.D.C.C. [6] The Commission has the power and authority to modify the spacing units whenever it is necessary to prevent waste or avoid the drilling of unnecessary wells, or to protect correlative rights. § 38-08-07(4), N.D.C.C. The Lubkes were not present at the July 24, 1979, hearing. They claim that this was due to inadequate notice. We agree with the district court that such absence was immaterial as that order of the Commission was remanded and the Lubkes were present at the May 20, 1980, rehearing and were given an opportunity to introduce evidence and examine witnesses. At the rehearing, Mr. William Lubke was called as a witness but did not testify as to the geological formations or shape of the structure from which the Lubke and Kelling wells were producing. Rather, the Lubkes rely entirely upon the evidence introduced by Amoco at the hearings. At the July 24, 1979, hearing (first hearing), Amoco introduced Exhibit # 1, asserting it to be their interpretation of the producing structure in the Top Devonian Duperow Formation [Map I]. It shows an anticlinal nose with open contour lines to the south: This exhibit shows the Lubke well in the northwest quarter of section 11, the Kelling well in the southeast quarter of section 11, and the dry hole in the southeast quarter of section 10. The testimony at the May 20, 1980, rehearing reveals that the Murphy dry hole in the southeast quarter of section 10 was misplaced on this exhibit and should have been placed further south in the southwest quarter of the southeast quarter of section 10 rather than in the northwest quarter of the southeast quarter of section 10. At the rehearing, Amoco offered another interpretation of the same field [Map II]. This exhibit discloses contour lines closed to the south: This exhibit was based partially upon the drilling of the Murphy Unit B well in the northeast quarter of section 10 which is structurally higher on the Duperow Formation than the Lubke well. Howard L. Sahl, a petroleum geologist employed by Amoco, testified that this indicated to him that the structure contours should be closed and that the formation would run in an east-west direction. On direct examination, Mr. Sahl testified that there could be an interpretation which would leave the contours open to the south. Mr. Sahl testified that the structure diagrams had changed at each hearing due to new information. The new information was, (1) the Murphy Unit B in the northeast quarter of section 10 which indicated to Mr. Sahl an east-west formation which would drain more from the Lubke's northeast quarter of section 11 than from the Murphy's southwest quarter, and (2) additional seismic work. [7] A consulting geologist for the Commission, Steven Harris, testified that he thought the evidence submitted by Amoco still supported a north-south spacing. He testified that stand-up spacing would best protect correlative rights. Mr. Harris drew in an additional contour line between the -8950 and -8900 contour lines placed by Amoco. Map III is the same map as map II which was submitted by Amoco, except the contour representing -8925 was drawn in by Mr. Harris on map III and by Mr. Sahl on map II. See map III compared to the line drawn by Mr. Sahl between these contour lines in map II: After the rehearing, the Commission found (4) [t]hat due to errors in Amoco's exhibit # 1 [Map II], a structure map contoured on the top of the Duperow Formation, the validity of the exhibit is questionable. Both of Amoco's experts agreed with the concept of radial drainage. [8] Mr. Sahl testified at the rehearing as follows: MR. SAHL: Well, I would agree that generally speaking drainage is radial, if the reservoir conditions are curved rather uniformily, then the drainage should be generally radial.  MR. HARDY : And is that not the case here?  MR. SAHL : From the wells, well information I would say that the reservoir is fairly uniform throughout the area.  MR. HARDY : And accordingly we have a radial drilling, or radius drainage pattern?  MR. SAHL : It's possible. Mr. R. B. Giles also testified at the rehearing as follows:  MR. HARDY : Do you agree with the concept of radial drainage.  MR. GILES : We, as reservoir engineers, must assume radial drainage, absent of proof beyond a reasonable doubt as to particular directional permeability in the reservoir.  MR. HARDY : All right, and on that basis and based on the information you have, drainage is occurring from the southwest 1/4 of section 11?  MR. GILES : Some drainage yes. The finding of the Commission that Amoco's exhibit [Map II] was of questionable value is supported by the following facts: (1) Amoco had drawn three different contour maps with the one presented at the rehearing being substantially different from the others. (2) Amoco misplaced the Murphy Unit A well. (3) All the experts testified that the Lubke well was draining the southwest quarter of section 11. (4) Radial drainage is presumed unless rebutted, and there is little evidence to rebut it. The Lubke well is located in the southwest quarter of the northwest quarter of section 11. The Kelling well is located in the northeast quarter of the southeast quarter of section 11. Amoco's expert testified that absent ... proof beyond a reasonable doubt as to particular directional permeability in the reservoir radial drainage must be assumed. As no such proof was submitted, the facts support the following finding of the Commission: (6) That, assuming radial drainage, the W/2 of said Section 11 will contribute more oil to the total ultimate recovery of the Lubke # 1 well than will the N/2 of the section. The Lubkes assert in their brief that the Commission has selectively relied on some of the evidence introduced by Amoco and discredited and rejected other evidence. They say: In the first place it is a well recognized principle in law that, as otherwise stated, `you can't have your cake and eat it too'. The Commission in reading its decision, has not had the benefit of any sufficient or credible evidence from any source other than Amoco. Yet its counsel asserts that the Commission's ruling is supported by Amoco's own evidence while at the same time attacking the less favorable aspects thereof as `not credible'. It hardly seems right in the law that the Commission should be allowed to pick and choose as it pleases. This asserted well recognized principle in law has no application to the present case. The Commission may accept evidence it deems credible and reject evidence it deems incredible regardless of the fact that it may all be submitted by the same party. As the evidence did not establish any drainage other than radial drainage, and radial drainage is presumed, the Commission relied upon this theory, a theory recognized by Amoco, and concluded that a well draining in a radial pattern will drain more oil and gas from its immediate area than from a tract further away. In so doing, the Commission acted properly to protect correlative rights by ordering standup spacing. Accordingly, that part of the Commission's order is affirmed. IV. Allocation Date The Lubkes also assert that [t]he Commission may not by virtue of a spacing order designate the effective date for allocation of production. The Lubkes rely upon the brief submitted by Amoco concerning this issue. In its brief Amoco asserts that by designating the date for the allocation of production in a spacing order the Commission has effectively pooled the separately owned interests included in the spacing unit without the benefit of a pooling agreement or regulatory order. This issue, however, was never brought before the Commission when it conducted the rehearing. The allocation date was set in the order of the Commission pursuant to the first hearing in 1979. The order pursuant to the rehearing in 1980 made additional findings of fact and affirmed the first order containing the allocation date. Ordinarily the issues considered by a reviewing court are confined to issues raised before the agency, in this case the Commission. Petition of Village Board of Wheatland, 77 N.D. 194, 42 N.W.2d 321, 335 (1950). In Schank v. North American Royalties, Inc., 201 N.W.2d 419 (N.D.1972), we recognized that pooling and spacing were separate concepts and that [a] spacing order standing alone without a pooling order does not operate as a defacto pooling of all fractional interests ... 201 N.W.2d at 422. See also §§ 38-08-07 and 38-08-08, N.D. C.C. [9] In this case, the Commission asserts it set a date for allocation of the production to the royalty owners, as a courtesy to Amoco so as to give Amoco advance notice of when the redesignation of the spacing units in Section 11 would become effective for purposes of reallocating production royalties. Applying the general rule earlier stated herein, we conclude that the issue of allocation as an item of pooling is not before us in this appeal. The judgment of the district court and, accordingly, the order of the Commission are affirmed. SAND, PAULSON and PEDERSON, JJ., and JAMES K. O'KEEFE, District Judge, concur. O'KEEFE, District Judge, sitting in place of VANDE WALLE, J., disqualified.