Opinion ID: 1737354
Heading Depth: 1
Heading Rank: 2

Heading: Evidentiary Support of the Findings

Text: By its second point, Imperial insists that the foregoing findings are not supported by substantial evidence. This point would present difficulty if our review were limited to various isolated expert testimony, such as the reluctance of the expert witness for BTA to give positive opinions and estimates as to conditions in the sands 19,000 feet below sea level, especially with reference to the amount of possible drainage from the BTA lease which may have occurred or which might occur in the future. Our review, however, must be based on the evidence taken as a whole. Alamo Express v. Union City Transfer, 158 Tex. 234, 309 S.W.2d 815 (1958). As in most cases of this nature, the evidence offered by the opposing parties is conflicting; so much so that contrary findings might have been supportable by substantial evidence. The rule which is likewise applicable to our review of this case was stated in Auto Convoy Company v. Railroad Commission, supra , as follows: In a judicial review of a Railroad Commission order, it is well settled that the court does not substitute its judgment for that of the administrative agency. In this regard, the question for the courts is whether the contested order is reasonably supported by substantial evidence. In appeals, the burden is upon the complaining parties to show an absence of substantial evidence and that the orders are unreasonable and unjust to them.... Where there is substantial evidence which would support either affirmative or negative findings, the order will be upheld, even though the Commission might have arrived at a decision contrary to that which the court might have reached. The correct test is whether the evidence as a whole is such that reasonable minds could have reached the conclusion that the Railroad Commission must have reached in order to justify its action. Railroad Commission v. Shell Oil Co., 139 Tex. 66, 161 S.W.2d 1022 (1942); Shupee v. Railroad Commission, 123 Tex. 521, 73 S.W.2d 505 (1934).... The basic right of every landowner or lessee to a fair and reasonable chance to recover the oil and gas under his property was recognized in Gulf Land Co. v. Atlantic Refining Co., 134 Tex. 59, 131 S.W.2d 73 (1939), and Railroad Commission v. Williams, 163 Tex. 370, 356 S.W.2d 131 (1961), with exceptions to spacing rules being proper when the applicants discharge their burden of proof that the exceptions are necessary to prevent waste or confiscation of property. See also the caveat in Halbouty v. Railroad Commission, 163 Tex. 417, 357 S.W.2d 364 (1962), with respect to exceptions which may be necessary for protection of small tract owners. Having reviewed the entire record, we hold that the findings, conclusions, and order of the Commission are reasonably supported by substantial evidence. The evidence consisted of the undisputed physical facts and testimony from one expert witness called by Imperial and one called by BTA. It was undisputed that BTA's Section 7 lease is entirely underlaid by a productive portion of the Gomez (Ellenburger) Field; that the BTA lease is surrounded on all sides by six producing gas wells; and that there is no producing well located on the BTA lease. It is further undisputed that before farming out the Section 7 lease to BTA, Texaco drilled a gas well on the lease in 1972, at a site south of BTA's proposed location. This well was in an area of low permeability and had difficulty with salt water intrusion. When producing, it made about 500 Mcf of gas per day. Accumulated production from this well in approximately eighteen months was only about 139,500 Mcf of gas. The well was plugged and abandoned, and there has been no production from the tract in question since 1974. Mr. Jerry Moritz, an engineer for BTA who appeared as its expert witness, testified that it would not be feasible to drill a well anywhere on the BTA lease except in the northeast portion on account of the low permeability existing in the sands underlying the remainder of the lease. It was shown that wells to the north and east of BTA's Section 7 were much better producers than those to the south and west. Some of this testimony was based upon Texaco's ill-fated experience with its abandoned well on the south half of Section 7. The physical facts, including the location of wells on adjoining Sections and their rates of production, constituted substantial circumstantial evidence in support of the finding that the BTA lease was being drained, especially by gas wells located to the north and east. It was shown that Imperial's well on Section 6, which adjoins BTA's lease on the north, was producing between 20,000 to 25,000 Mcf per day or in the range of 600,000 to 700,000 Mcf per month. Thus, the Imperial well was producing in one month more than four times as much gas as the Texaco well on the BTA lease produced during its entire eighteen months prior to abandonment. Mr. Gillespie, Imperial's expert, testified that the Imperial well would recover all of the gas reserves beneath its Section 6 lease, and admitted that it might drain a little, but not much from adjoining leases. His testimony practically negates any likelihood that a well drilled by BTA under its Rule 37 exception would prejudice substantial rights of Imperial, because of its ability to recover at a high rate of production all of its Section 6 reserves through its existing well. Mr. Gillespie stated that the proposed BTA well would have to produce more than 5,000 Mcf per day to drain gas from the Imperial lease. Imperial insists that BTA failed to prove that drainage or confiscation would occur if the proposed well is not drilled, because the BTA expert would not testify definitely that drainage was occurring and because he admitted that a well drilled at a regular location could eventually produce the reserves beneath the BTA lease over a longer period of time. This was not all of this expert's testimony. On the contrary, he testified that a regular location for a well 19,000 feet deep was not feasible because of the low production rate in this proven area of low permeability. As to drainage and the necessity for the exception permit in order for BTA to have a fair chance to recover its hydrocarbons, Mr. Moritz testified: Q. If the lease is being drained, is a well needed at the requested location to reduce or prevent this drainage? A. Definitely. As already established, the circumstances in the field, considering structure as well as the areas where one can expect to make a good producer, are such that it is difficult, and perhaps impossible, to justify drilling on Section 7 without the requested spacing exception. Therefore, if the lease is being drained, the granting of this exception and completion of a well in the Ellenburger at the requested location is reasonably necessary in order to prevent drainage away from BTA's lease. Q. Then, Mr. Moritz, what conclusion do you reach about the situation faced by BTA here? A. Either the gas underlying Section 7 is not capable of being produced by any existing well, in which case a well on the lease is necessary to prevent waste; or, the gas underlying the section is being drained, in which case a well on the lease is necessary to protect the lease from such drainage. Perhaps the situation is such that both reasons apply. In any case, to permit BTA to drill a well on the lease, it is necessary that BTA be granted the requested exception so that the well can be located where there is a reasonable probability of making a good producer. The granting of the exception is necessary either to prevent waste or to prevent drainage, or for both reasons, and is certainly necessary to enable BTA to have a reasonable opportunity to recover the hydrocarbons underlying its lease, or their equivalent in kind. As indicated, a review of the evidence as a whole shows that the order granting the Rule 37 Exception Permit was reasonably supported by substantial evidence.