Opinion ID: 2429351
Heading Depth: 2
Heading Rank: 3

Heading: common reservoir

Text: We next consider whether the Railroad Commission may force pool, in a single MIPA proceeding, separate deposits of gas not in natural communication but in manmade communication through a common well bore. Pend Oreille contends that pooling the Main and Stray Sands in one proceeding was beyond the commission's scope of pooling authority. The commission, Pend Oreille argues, should have held separate hearings for pooling the two sands. Pend Oreille specifically argues: (1) that the term common reservoir limits the commission to pooling single reservoirs, which are separate and not in natural communication, (2) that the term is unambiguous and has always been understood to mean a single source of supply, all parts of which are in natural (not man-made) communication, and (3) that the legislature intends for the common reservoir language to be a limit on the commission's pooling authority. On the other hand, Forney and the commission urge us to construe common reservoir in a manner that allows the commission to pool separate lenticular reservoirs [7] as a common reservoir where a common well bore perforates both reservoirs and causes downhole commingling. They argue that the MIPA does not distinguish between reservoirs that are in communication through man-made versus natural means. According to Forney and the commission, the pooling of these sands furthers the purposes of the MIPA, prevents confiscation and promotes administrative efficiency.

The MIPA allows the commission to pool two or more separately owned tracts of land that are embraced in a common reservoir of oil and gas for which the commission has established the size and shape of proration units.... Tex.Nat.Res.Code § 102.011. The MIPA does not define common reservoir. However, chapter 86 of the Natural Resources Code defines it as: [A]ll or part of any oil or gas field or oil and gas field that comprises and includes any area that is underlaid or that, from geological or other scientific data or experiments or from drilling operations or other evidence, appears to be underlaid by a common pool or accumulation of oil or gas or oil and gas. Id. § 86.002(4). Chapter 85 states that the term common reservoir means common pool, pool, field, or common source of supply. Id. § 85.001(a)(2). Pool means an underground reservoir containing a connected accumulation of crude petroleum oil, or natural gas, or both. Id. § 85.001(a)(3). None of these definitions addresses the specific issue here. In 1979 and 1981, the legislature enacted what are commonly referred to as the commingling statutes. See Tex.Nat.Res.Code §§ 85.046, 85.053, 85.055, 86.012, 86.081. Since their enactment, the commission's position has been that it has the power to pool lenticular reservoirs, not in natural communication but in man-made communication, as if they are a common reservoir. [8] The court of appeals below held that the commission had no such authority. 788 S.W.2d at 883. The court relied on Railroad Commission of Texas v. Bishop Petroleum, Inc., which addressed the same issue. 736 S.W.2d 724 (Tex.App.Waco 1987), affd in part & rev'd in part on other grounds per curiam, 751 S.W.2d 485 (Tex.1988). Both the Bishop court and the court below adopted the definition of common reservoir enunciated by this court in the cases of Railroad Commission of Texas v. Graford Oil Corp., 557 S.W.2d 946 (Tex.1977), and Gage v. Railroad Commission of Texas, 582 S.W.2d 410 (Tex.1979).
In Graford, we addressed the question whether the Railroad Commission had the authority to enter an order that combined nine separate, noncommunicating gas fields into one field and issued spacing and production rules applicable to the consolidated field. 557 S.W.2d at 948. Following our earlier decisions, [9] we stated that the statute granting the commission authority to regulate the production in natural gas fields only authorized the commission to prorate and regulate daily gas production from a common reservoir. Id. at 949-50. The prorationing statutes, we stated, did not authorize the commission to combine separate reservoirs into a single field for proration purposes for administrative convenience. We held that a common pool or a common accumulation of hydrocarbons, separate and distinct pools of oil or gas, which are not connected, and which do not communicate with one another, do not constitute a `common reservoir.' Id. at 950. We further held the commission's consolidation order invalid because the commission's fact findings did not support the conclusion that the consolidated field was a common reservoir. Id. at 951. We reaffirmed Graford in Gage v. Railroad Commission of Texas, 582 S.W.2d 410 (Tex.1979). Gage involved the Boonsville Field, which consisted of several separate and distinct lenticular and multi-stratigraphic reservoirs of natural gas. Id. at 412, 414 n. 3. Once again, we examined the commission's statutory authority to prorate the production of natural gas and determined that the pertinent statutory provisions only sanctioned prorationing of common reservoirs. Despite the commission's ultimate finding that Boonsville was a common source of supply of natural gas, examination of the commission's underlying findings of fact revealed that Boonsville was, in truth, a consolidation of several separate and distinct common reservoirs. Thus, we held that the commission was without statutory authority to reinstate proration or to issue proration orders. Id. at 415. Following Gage, the commission began denying all requests for commingling to maintain the integrity of the prorationing system. 2 Smith & Weaver at 334. This led to the inability of operators to recover oil and gas from separate and distinct deposits, and consequently, oil and gas production was not recoverable from certain lenticular reservoirs. Id. In response, the Texas Legislature, in 1979, enacted Senate Bill 257. It amended sections 85.046 and 86.012 of the Natural Resources Code to authorize the commingled production of oil and gas in certain cases to prevent waste, to promote conservation, or to protect correlative rights. Act of May 29, 1979, 66th Leg., R.S., ch. 300, §§ 1 & 2, 1979 Tex.Gen. Laws 673, 673-75 (codified at Tex.Nat.Res. Code §§ 85.046, 86.012). In its final form, the bill did nothing more than allow downhole commingling of production. It did not permit the prorationing of commingled production. After the bill became law, the commission amended statewide rule 10 (previously a total prohibition of downhole commingling) to allow exceptions for commingling when necessary to prevent waste, to promote conservation or to protect correlative rights. Tex.R.R.Comm'n, 4 Tex.Reg. 3082 (1979) (codified at 16 Tex.Admin.Code § 3.10(b) (West Sept. 1, 1988)). Rule 10 was further amended to provide that commingled production, pursuant to an exception under the rule shall be considered production from a common source of supply for purposes of proration and allocation. Id. (codified at 16 Tex.Admin.Code § 3.10(c)). The impact of Senate Bill 257 on the Graford and Gage decisions was at issue in Railroad Commission of Texas v. Mote Resources, which again involved the Boonsville Field. 645 S.W.2d 639 (Tex.App. Austin 1983, no writ). The court of appeals, agreeing with the district court, held that the bill did not overrule Graford and Gage. It stated that [t]he effect of the bill, as passed, [does] nothing more than to put a legislative stamp of approval upon the long-standing practice of allowing the production of oil or gas from separate accumulations that have been connected through a common well bore[,] and noting that [t]he bill makes no attempt to deal with the issue of proration. Id. at 644 (emphasis in original). While the case was pending in the court of appeals, the legislature enacted Senate Bill 1146, which finally granted the commission authority to prorate production from commingled zones as if they were a common reservoir. Act of June 16, 1981, 67th Leg., R.S., ch. 688, §§ 1-3, 1981 Tex.Gen.Laws 2578, 2578-80 (codified at Tex.Nat.Res.Code §§ 85.053, 85.055, 86.081). The court of appeals observed that Senate Bill 1146 clearly had the effect of overturning Graford and Gage. Mote, 645 S.W.2d at 644. The court of appeals below wrote that [t]he Legislature's reaction to Graford, Gage, and Mote Resources demonstrates its hesitancy to grant the Commission a broad, general power to regulate commingled oil and gas. 788 S.W.2d at 882. The Waco court of appeals, in Railroad Commission of Texas v. Bishop Petroleum, Inc., likewise stated, in dictum, that the legislature's expansion of the commission's regulatory authority over commingled reservoirs did not extend to the commission's pooling authority under the MIPA. 736 S.W.2d at 732. We disagree with and disapprove of both courts of appeals' statements. The legislature does intend the Railroad Commission to have discretion in regulating commingled oil and gas, including pooling. The ultimate outcome of the Boonsville Field cases demonstrates how the legislature resisted an interpretation of the term common reservoir that would have limited the commission's regulatory authority.
Senate Bill 1146 amended section 86.081 of the Natural Resources Code by adding subsection (b). In light of the judicial action and legislative reaction in the Boonsville cases, the language in section 86.-081(b) is significant. It provides: When, as provided in Subsection (b) of Section 85.046 or Subsection (b) of Section 86.012 of this code, as amended, the commission has permitted production by commingling oil or gas or oil and gas from multiple stratigraphic or lenticular accumulations of oil or gas or oil and gas, the commission may prorate, allocate, and regulate the production of such commingled, separate multiple stratigraphic or lenticular accumulations of oil or gas or oil and gas as if they were a single common reservoir.... Tex.Nat.Res.Code § 86.081(b) (emphasis added). We interpret the words prorate, allocate, and regulate, and especially the broad word regulate, to evidence an intention to grant the commission broad authority over gas production from commingled reservoirs. The MIPA is one means by which the commission exercises its regulatory authority over oil and gas production. Furthermore, section 86.081(b)'s reference to sections 85.046 and 86.012 of the code is significant. These sections both address and define waste of gas. Section 85.046 is located in subchapter C of Chapter 85 of the code and is entitled PROVISIONS GENERALLY APPLICBLE TO THE CONSERVATION OF OIL AND GAS. Section 86.012 is located in Chapter 86 of the code, which is entitled REGULATION OF NATURAL GAS. Subsections (b) of these provisions both provide: Notwithstanding the provisions contained in this section or elsewhere in this code or in other statutes or laws, the commission may permit production by commingling oil or gas or oil and gas from multiple stratigraphic or lenticular accumulations of oil or gas or oil and gas where the commission, after notice and hearing, has found that producing oil or gas and oil and gas in a commingled state will prevent waste, promote conservation, or protect correlative rights. Tex.Nat.Res.Code §§ 85.046, 86.012. These general provisions show the legislature's intention to permit gas production from commingled reservoirs, regardless of any other provisions to the contrary, if commingling is necessary to achieve the stated objectives. The stated objectives in subsections (b) are virtually identical to the stated purposes of the MIPA; they are to avoid drilling unnecessary wells, protect correlative rights and prevent waste. To the extent that commingling of separate gas reservoirs not in natural communication achieves these objectives, the commission may permit such commingling in the exercise of its pooling authority. We conclude that the legislature intended that the commission have the authority to decide what constitutes a common reservoir for the purposes of the MIPA.
The commission's examiners reasoned that pooling should be ordered in one MIPA proceeding because (1) this approach would achieve the general purposes of the MIPA; (2) there is no logical reason to treat the two sands as a common reservoir for proration and allocation purposes, but not for pooling purposes; (3) adopting Pend Oreille's position would be an inefficient use of administrative resources; and (4) Pend Oreille's construction would undermine the MIPA's effectiveness. Pursuant to APTRA section 19(e)(5), we conclude that the commission's application of the term common reservoir to the facts of this case is reasonable. We hold that the court of appeals erred in reversing that portion of the commission's order pooling both the Main and Stray Sands as a common reservoir.