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

Heading: Graford and Gage

Text: 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.