Opinion ID: 1129782
Heading Depth: 1
Heading Rank: 5

Heading: Transco's Claims Under State Law

Text: Turning to the state law claims, Transco first argues that the Oil and Gas Board was without authority to adopt or enforce a rule requiring ratable taking such as Rule 48. The point is without merit. The State Oil and Gas Board is a creature of the legislature and, of course, has no authority other than that vested in it by statute. Masonite Corporation v. State Oil and Gas Board, 240 So.2d 446, 449 (Miss. 1970). To ascertain what authority the Board has, we consult the Mississippi Oil and Gas Conservation Act of 1948, originally enacted as House Bill No. 80, Miss. Laws of 1948, Chapter 256, and now codified as amended as Miss. Code Ann. § 53-1-1, et seq., (Supp. 1983). Looking to the words of that enactment we find in Section 53-1-17(c) Board authority to carry out the general policy directives of Section 53-1-1 which are, in part, that the co-equal and correlative rights of owners in a common source or pool of oil and gas shall be safeguarded to the end that each such owner in a common pool or source of supply of oil and gas may obtain his just and equitable share of production therefrom. Barnwell, Inc. v. Sun Oil Company, 249 Miss. 398, 406, 162 So.2d 635, 638 (1964). An understanding of the legislative words emerges from thought about what co-equal and correlative rights such owners have under our law and just why and from what these rights need protection. Our core concern, at the risk of repetition, is the geological phenomenon of drainage, described in Shell Oil Company v. James, 257 So.2d 488 (Miss. 1971) in this way. When the pool of oil has been penetrated by a recovery well, the oil and gas located in the pool move from a high pressure area to a low pressure area so that the oil and gas migrate from the property of one landowner to another. This exodus is called drainage. 257 So.2d at 494-495. In this context we understand the correctness of the observations in one of the leading treatises on oil and gas law, Summers on Oil and Gas, Vol. IA, § 103.1 at 132: The mere opportunity of a landowner to take his share of the oil and gas in a common source of supply does not provide complete protection of his property rights in them. If others produce and market, he must also produce and market or lose much of his share through drainage and the exhaustion of reservoir energy. He cannot produce and market unless a market outlet is available. To provide market outlets for both oil and gas a few states have enacted common purchaser statutes requiring common carrier pipelines or other persons in business of purchasing oil or gas in a common source of supply to take ratably from all owners. The geological realities of the world of oil and gas have sensitized the lawmakers of this state. Phillips Petroleum Co. v. Millette, 221 Miss. 1, 15-17, 72 So.2d 176, 179 (1954) recognizes that the prevention of loss through drainage is required by fundamental notions of equity and justice. Our law has long ago translated these notions of equity and justice into enforceable rights vested in owners of interests in oil and gas rich lands. Shell Oil Company v. James, 257 So.2d 488, 495 (Miss. 1971). It is of such rights that our Legislature speaks when it declares in Section 53-1-1 the public policy of the state that the co-equal and correlative rights of owners in a common source or pool be protected. Similarly the Legislature speaks of such rights when Section 53-1-17(c) authorizes the Board to carry out the general policy directives of Section 53-1-1. Being as redundant as occasionally are judges, our legislators have in Section 53-1-17(c)(12) vested the Oil and Gas Board with the authority to prevent abuse of these correlative rights which may result from non-uniform, disproportionate or unratable withdrawals causing undue drainage between tracts of land or resulting in one or more owners in such pool producing more than his just and equitable share of the production from such pool. Moreover, the Board has the authority under Section 53-1-17(c)(13) to prevent, so far as practicable, reasonably avoidable drainage from each developed unit which is not equalized by counter-drainage. Shell Oil Company v. James, 257 So.2d 488, 493 (Miss. 1971). Beyond that, the Board has implied authority to do what may be reasonably necessary to carry out the specific mandates of the Legislature. State Oil and Gas Board of Mississippi v. Brinkley, 329 So.2d 512, 514-515 (Miss. 1976); Mississippi Public Service Commission v. Chambers, 235 Miss. 133, 142, 108 So.2d 550, 554 (1959). Couple all of this with the provisions of Section 53-1-17(c) which empower the Oil and Gas Board to make such reasonable rules, regulations and orders as may be necessary from time to time in the proper administration and enforcement of the oil and gas conservation laws of this state, State Oil & Gas Board v. Mississippi Mineral & Royalty Owners Association, 258 So.2d 767, 768 (Miss. 1971), and we have more than ample statutory authority vested in the Board enabling the promulgation and enforcement of a rule requiring ratable taking such as Rule 48. We have upheld the authority of the Board to promulgate a variety of rules with respect to which arguably there is less express statutory authorization than is the case here. See, e.g., Barnwell, Inc. v. Sun Oil Co., 249 Miss. 398, 406-07, 162 So.2d 635, 638 (1964) (Board has power to allocate and apportion production); Frost v. Gulf Oil Corp., 238 Miss. 775, 791-92, 119 So.2d 759, 764 (1960) (Board rules supplement statute); Corley v. Mississippi State Oil & Gas Board, 234 Miss. 199, 211-13, 105 So.2d 633, 638 (1958) (perpetuation of 40 acre units and creation of field-wide unit upheld because the units would protect the co-equal and correlative rights of the owners); Hassie Hunt Trust v. Procter, 215 Miss. 84, 97-98, 60 So.2d 551, 556 (1952) (Board could designate drilling units); Green v. Superior Oil Co., 59 So.2d 100, 101 (Miss. 1952) (upholding Board's spacing rules providing 320 acre units). Requiring one such as Transco to take what it does not want should not be done lightly. The right to purchase what one wants (at a negotiated price) and to decline the purchase of what one does not want is normally secured, absent extraordinary circumstances. On the other hand, the general contours of the police power of the state have become well-established, and that power may qualify rights otherwise secured. In Superior Oil Company v. Foote, 214 Miss. 857, 59 So.2d 85 (1952), this Court, speaking of the exercise of the police power as vested in the Board, had this to say: The police power of the state includes not only regulations to promote public health, good morals, and good order, but also the . .. [authority] to regulate and to promote development of industry and utilization of natural resources in order to add to the wealth and prosperity of the state. 214 Miss. at 875, 59 So.2d at 93. A corollary desideratum equally susceptible of lawful achievement via the state's police power calls for a currently fair division of those natural resources. This the policy statement of Section 53-1-1 proclaims when it declares it in the public interest to safeguard, protect and enforce the co-equal and correlative rights of owners in a common source of supply. This our Court has embraced when, in Superior Oil Co. v. Foote , we recognized that in the lawful exercise of its police power the state may enact regulatory laws for and proscribe methods of extracting oil and gas for the ... protection of the correlative rights of all owners in a common source of supply. 214 Miss. at 876, 59 So.2d at 93. Accepting values from our past, our law continues to cherish freedom of contract and freedom to contract. U.S. Const. art. I, § 10, cl. I; Miss. Const. art. III, § 16 (1890). Those freedoms, however, are not unqualified. This Court has repeatedly recognized that ordinary economic freedoms generally secured are qualified by a proper exercise of the police power of the state... . Hence it is said that all contract and property rights are subject to a reasonable exercise of the police power. Superior Oil Co. v. Foote, 214 Miss. at 876, 59 So.2d at 93; Mississippi Milk Commission v. Vance, 240 Miss. 814 at 857, 129 So.2d 642 at 661 (1961). The Supreme Court of the United States has likewise recognized that the prohibitions of the facially absolute Contract Clause must be accommodated to the inherent police power of the State to safeguard the vital interests of its people. Energy Reserves Group, Inc. v. Kansas Power and Light Company, 459 U.S. 400, 401, 103 S.Ct. 697, 704, 74 L.Ed.2d 569, 580 (1983). The Legislature of this state has lawfully empowered the State Oil and Gas Board to protect the co-equal and correlative rights of owners in a common pool of natural gas. The Board's ratable take rule is a proper exercise of the authority so vested in it. Without further ado, we hold that the State Oil and Gas Board has the authority to promulgate a rule requiring ratable taking, such as Rule 48, and has the authority to enforce that rule according to its tenor. We affirm so much of the order of the State Oil and Gas Board as requires Transco, if it takes at all from a common source of supply, to take ratably; that is, Transco is required to offer in good faith to purchase from every one of the various producing interests in the common source of supply [13] the same percentage of those producers' gas as it purchases from that producer the highest percentage of whose interest Transco takes. This is consistent with the language of Rule 48. It is likewise consistent with the authority vested in the State Oil and Gas Board by the Legislature. It is finally consistent with geological realities and national and state public policy, insofar as we are able to discern them. Fixing prices, however, is another matter.