Court Opinion

ID: 5010381
Source: CourtListenerOpinion
Date Created: 2021-10-01 02:42:25.061854+00
Date Added: 2024-06-11T08:17:24.633264
License: Public Domain

BLAIR, Justice
(dissenting).
The majority base their decision in the instant case upon the interpretation of Rule 37 as being a finding by the Commission that waste of oil will be caused by drilling oil wells at closer distances than the minimum spacing distances prescribed in the rule. Having so interpreted the rule, the majority then hold that the evidence adduced, tending to show that the well in question would recover a substantial amount of oil that would be otherwise left in the ground and wasted, is in direct conflict with the rule itself and is but a collateral attack upon the rule. With this interpretation of the rule and conclusion I cannot agree.
Such an interpretation of the rule was made by the majority view in some of the earlier cases coming before this court. See Atlantic Oil Production Co. v. Commission, Tex.Civ.App., 85 S.W.2d 655, and cases there cited, as having made the same interpretation of the rule. It appears, however, that such an interpretation of the rule was not necessary to the decision in any case, because either the undisputed evidence showed that the permittee had the advantage under the wells already drilled, or the decision was controlled by the voluntary subdivision rule. The first case in which this majority interpretation of the rule appears to have become material was Magnolia Petroleum Co. v. Railroad Commission, Tex.Civ.App., 105 S.W.2d 787, commonly referred to as the Century case. A writ of error was granted in the Century case, and the majority view, or interpretation of the rule as theretofore expressed in all former cases and in the Century case itself, was expressly overruled, the Supreme Court interpreting the rule as being divided in two parts. The first dealing with the spacing pattern for the entire field and for wells generally; the second with specific wells, to be drilled as exceptions to the general rule to prevent waste or confiscation, and that “these two parts compose the entire rule, the one as much as the other, and must be construed together.” See 130 Tex. 484, 109 S.W.2d 967, 971. Thereafter this court followed and applied this rule of the Century case in many cases and particularly m the cases of Daily v. Railroad Commission, Tex.Civ.App., 133 S.W.2d 219, writ refused, and Stanolind Oil & Gas Co. v. Midas Oil Co., Tex.Civ.App., 123 S.W.2d 911, wherein the majority appear to have reluctantly done so.
Meantime, in the case of Atlantic Ref. Co. v. Gulf Land Co., Tex.Civ.App., 122 S. W.2d 197, the majority refused to follow the Century case, the writer dissenting, and again interpreted the same Rule 37 as being an official finding by the Commission that wells drilled closer than the minimum spacing distance of 660 feet prescribed in the rule would cause waste of oil. A writ of error was promptly granted in the Gulf Land Company case and in 134 Tex. 59, 131 S.W.2d 73, 80, the Supreme Court again expressly overruled the majority view or interpretation as follows: “We *515do not understand that the Commission, by the promulgation of Rule 37, has undertaken to say that it will be presumed that any well drilled at lesser distances than the minimum spacing distances named in the rule will cause waste, in the sense that in such instances oil will ultimately be lost in the ground and that would be saved if such minimum spacing distances were observed.”
Furthermore, in both the Century case and the Gulf Land case, the Supreme Court interpreted Rule 37 as being promulgated for the accomplishment of orderly drilling by requiring minimum distances at which wells may be drilled without application or permit, and by requiring application and permit to drill at lesser distances to prevent waste or confiscation; and that the mere fixing of minimum distances at which wells may be drilled without application or permit was not intended as a finding by the Commission that wells drilled at closer distances than the minimum distances prescribed would cause waste as a matter of fact. The court then defined waste as that term was used in the rule as follows: “ ‘Waste,’ as used in oil and gas Rule 37, undoubtedly means the ultimate loss of oil. If a substantial amount of oil will be saved by the drilling of a well that otherwise would ultimately be lost, the permit to drill such well may be justified under one of the exceptions provided in Rule 37 to prevent waste.”
This interpretation of the rule by the Supreme Court was followed by this court in the case of Humble Oil & Ref. Co. v. Turnbow, 133 S.W.2d 191, writ refused, wherein a permit to drill a well was granted upon conflicting testimony or evidence that oil would be recovered by the drilling of the well which would not otherwise be recovered by any other well, but would be left in the ground and lost.
The Beaumont Court of Civil Appeals made the same ruling under similar facts in the case of Buckley v. Atlantic Ref. Co., 146 S.W.2d 1082, writ refused, citing the Gulf Land case as authority.
Two recent cases by the Federal Circuit Court, Gulf Land Company v. Atlantic Ref. Co., 5 Cir., 113 F.2d 902, which involved the permit to reopen and operate the same well that was denied by the majority in 122 S.W.2d 197; and Stanolind Oil & Gas Co. v. Ambrose, 5 Cir., 118 F.2d 847, follow the decision of the Supreme Court in the Gulf Land case. Other cases by the Courts of Civil Appeals follow the Gulf Land case, but the above cases are cited because the facts therein stated are practically on all fours with the facts in the instant case with respect to the issue of whether oil would be recovered by a permitted well that would not be recovered by any well then existing, but would be left in the ground and lost or wasted.
The greater part of the majority opinion is a brief or argument in support of the interpretation of Rule 37 as being a finding by the Commission that wells drilled in closer proximity than the minimum distances prescribed in the rule will cause physical waste of oil. Nothing new nor novel is presented by the argument. It is the same as has been used in all cases wherein the majority have sought to give the rule such construction. The argument in the instant case does reveal more clearly, however, that this long and continued fight between the majority view and the Commission is one relating solely to administrative policy, and over which matter the courts have no jurisdiction.
This difference as to whose administrative policy is the better is clearly shown by the argument in support of the continuous effort of the majority view to strike down the fact finding of the Commission, made in its application of Rule 37, that the more wells that are drilled in any field the more oil will be recovered, provided the total allowable for the field is restricted and wells are required to produce ratably. The majority view seeks to strike down this finding of fact upon two grounds. In the first place, it is argued that such finding is false or contradictory because the Commission has impliedly found in the rule itself that wells drilled at closer distances than the minimum distances prescribed would cause waste. This view, of course, time and time again has been overruled by the Supreme Court.
In the second place, the majority opinion points out that the original 150-300-foot spacing prescribed for wells in the East Texas field was amended on September 2, 1931, to increase the spacing distances for wells to 330-660 feet, the order of the Commission reciting that the increased spacing distances were necessary to prevent threatened physical waste of oil due to rapid dissipation of gas energy, and the rapid encroachment of water. Upon this premise the majority view proceeds to deprecate the “purported findings or recitations * * * in subsequent amendments of *516Rule 37 * * * that ‘the closer wells are drilled the greater will be the recovery from the area so drilled/ ” contending that the Commission has not modified nor changed the 330-660-foot spacing, and in consequence the latter findings are clearly wrong and unsustainable; and that the findings that “the more wells [the] more oil” place the Commission in the paradoxical position of contending at the same time that wider spacing is needed to prevent waste, but that denser drilling will prevent waste; and that such subsequent findings constitute a repudiation by the Commission of the spacing rule itself as a conservative measure.
This argument is refuted by one statement. The 1931 amendment, which contains the recitations and findings relied upon by the majority, was made before the enactment of the proration statutes. Wells under the 150-300-foot rule were being produced at full flow, thus causing coning, channelling, and the other threatened underground waste described in the amendment. Soon after the proration statutes were put into effect the Commission found from actual experience that the principal sources of waste which the original spacing rule was intended to prevent disappeared; and, furthermore, by actual experience found that oil was being wasted under the new setup by leaving it in the ground. This is manifested by recitals in several amendments to Rule 37, made shortly after the proration statutes became effective, and particularly by its orders of August 26, 1935, February 24, 1936, and July 13, 1937, wherein the Commission recites that from its actual experience in the supervision of the East Texas field it has found that the closer wells are drilled the greater will be the ultimate recovery of oil and gas from the field, provided the total allowable is restricted and wells are required to produce ratably. Accordingly, and without change in the minimum distances at which wells may be drilled without application or permit, the Commission has developed the East Texas field under the exceptions to prevent waste or confiscation until it has been drilled to a density of one well to less than five acres instead of one well to ten acres, which would be the density if the 330-660-foot distances constituted a prescribed drilling pattern, and an implied finding that wells drilled at closer distances would cause waste. Thus the administrative interpretation of the rule is conclusively established by long years of application. These interpretations of the rule by the administrative body charged with the duty of promulgating and enforcing it, repeatedly approved by the Supreme Court, have thereby become a rule of property, which cannot be destroyed by the majority view construction of this an intermediate appellate court.
The majority view takes the additional position that the Commission is mandatorily enjoined by the statute cited to take into consideration certain elements of waste defined in the statute, including particularly “market demand”, in determining if a well may be drilled as an exception to prevent waste. Neither pleading nor evidence in this case raises any issue as to these statutory elements of waste. Nor is there anything in the record to show that the Commission did not take them into consideration in granting the permit to drill the well in question. The statutes themselves make prima facie valid all orders of the Commission, and, in absence of a showing to the contrary, the law presumes that these officials have complied with such statutory requirements. The Gulf Land and Century cases so hold. Thus the majority view again seeks to substitute its administrative policy for that of the administrative body on a purely administrative matter, and as to which the parties themselves have not raised any issue either before the Commission or this court. Manifestly, under this state of the record, the majority view is not authorized to set aside the order granting the permit to drill the well in question out of any consideration of conjectural market demand waste.
Another reason exists why market demand waste has no place in this case. Market demand waste relates primarily to economic waste as distinguished from physical waste of oil, although physical waste may in some indirect or remote way be caused by producing oil in excess of market demand, which upon being stored above ground may be subject to deterioration or destruction from the elements or fire. No such waste is even squinted at in the instant case. So any question of market demand waste in the case must relate solely to economic waste, which is not defined by the statute; and if any rule or regulation of the Commission defines market demand or economic waste, it is not in the record. And although no question of market de*517mand or economic waste is involved, the majority view injects the question, and strikes down the order of the Commission granting the permit to drill the well, apparently upon some sort of belief that the Commission is failing to perform its duty with respect to such matter. In any event the matter is one left to the sound discretion and judgment of the Commission. Its order granting the permit to drill the well in order that the permittee may recover a substantial amount of oil that would be otherwise left in the ground and wasted is final, and it is not within the power of the courts to disturb such administrative order. If it is the majority view that the permittee may be denied the right.to drill and produce his oil and is compelled to leave it in the ground merely because its production may interfere with others in the sale of more of their oil, or for a higher price, then such view is not only unlawful, but it is wicked.
It may be observed in this connection that economic waste, under proration statutes, has been held to involve a cooperative or socialistic economic plan whereby the legislature commits to a regulatory body the duty of determining from time to time the reasonable market demand for oil and gas, limiting the total production to the amount of the market demand, and prorating such amount among the several producers. 31 Tex.Jur. 1150-1159, and cases there cited. 24 Am.Jur. 630-633, and cases there cited. When properly drawn such statutes have been held to be valid, but it does not follow that all orders entered under them are valid. This is because such regulatory power of the state is necessarily limited by the supreme law of both the state and the nation, which recognizes the rights of persons to own property and to engage in the lawful vocation of producing and selling oil and gas, and it is beyond the power of any government to seize or destroy their property without just compensation, or to arbitrarily interfere with its use and enjoyment. Pacific Palisades Ass’n v. Huntington Beach, 196 Cal. 211, 237 P. 538, 40 A.L.R. 782; Thompson v. Consolidated Gas Utilities Corp., 300 U. S. 55, 57 S.Ct. 364, 81 L.Ed. 510; Champlin Ref. Co. v. Corporation Comm., 286 U.S. 210, 52 S.Ct. 559, 76 L.Ed. 1062, 86 A.L.R. 403; Bandini Pet. Co. v. Superior Court, 284 U.S. 8, 52 S.Ct. 103, 76 L.Ed. 136, 78 A.L.R. 826; Brown v. Humble Oil & Refining Co., 126 Tex. 296, 83 S.W.2d 935, 99 A.L.R. 1107; Dailey v. Railroad Commission, Tex.Civ.App., 133 S.W.2d 219, writ refused. And in the Gulf Land Company and Railroad Commission v. Gulf Production Co., 134 Tex. 122, 132 S.W.2d 254, cases the Supreme Court held that a denial to an owner or lessee of a fair chance to recover the oil and gas in or under his land, or their equivalents in kind, constitutes “confiscation” within the meaning of Rule 37. Why is not this rule of law applicable in the instant case where substantial evidence showed and the Commission found that the permitted well would recover oil that would otherwise be lost by leaving it in the ground? To refuse to apply this rule of law out of any consideration of conjectural market demand or economic waste is but to trifle with justice.
In further arguing the merits of its administrative policy as opposed to that of the Commission, the majority view asserts that the Commission’s “more wells more oil findings” assume that waste is prevented only by the extraction of the greatest quantity of oil from the underground pool; and that such findings fail to consider surface waste caused by excessive production, excessive storage and glutting the market. The Commission’s findings assume no such facts, but are based upon the actual experience of the Commission in the development of the field. There is no evidence in the record even attempting to show that the Commission did not consider surface waste in granting the permit to drill the well, and in consequence the law presumes that it did. The position taken by the majority view is entirely assumed. Having assumed, all the premises, the majority view then prescribes its own administrative formula for operation, providing that before the Commission can grant a permit to drill a well under the exception to prevent waste, it “must” weigh increased subsurface recovery secured by denser drilling against an assumed increased surface waste, and then by denying or granting the well achieve the objective of the conservation laws. The astounding statement is then made that if this formula is not adhered to there will be excessive production through dense ■drilling, which will “glut the market, cause excess storage above ground, create fire hazards, etc., thus causing waste above ground not compensated by th'e added recovery from beneath it,” and that this “is not conserving the natural resource.”
*518This “glut the market” policy is injected in the instant case for the first time in this court. There is no evidence that the production of about 20 barrels of oil per day would “glut the market.” To glut the market would ordinarily result in reduction of prices. The consumers of oil might welcome some glutting of the market. Surely the legislature did not intend, when it authorized the Commission to consider “market demand” in connection with the prevention of waste of oil in the general sense of physical waste, to further authorize the Commission to establish some sort of artificial forcing of prices by governmental action, in cooperation with those engaged in the oil industry and interested in raising prices, by either stimulating demand or keeping supply within certain bounds.
However, this majority view administrative policy is sought to be substituted for that adopted by the Commission in the enforcement of its Rule 37 in the instant case. That is, the majority say that the Commission should have compared the proved loss appellant will suffer by leaving his oil in the ground, if the well is not drilled, with above ground waste, and then by striking down the permit of the Commission the majority necessarily held that the comparison was favorable to above ground waste. Just where this above ground waste will occur, or who will suffer, it is not shown by either evidence in this record or by the majority opinion. Thus unknown above ground waste is compensated at the expense of appellant by leaving his oil in the ground to be forever lost.
Has not conservation of this natural resource been effectively accomplished by the “more wells more oil findings” policy of the Commission? Leaving in the ground substantial amounts of oil which could be recovered by drilling a well is not conserving this natural resource. The Commission has found from its actual experience that the more wells drilled in any given area, the more oil will be ultimately recovered, provided allowables are restricted and wells are required to produce ratably; and that oil left in the ground by not drilling for it is lost or wasted. Accordingly, it has granted thousands of wells in the East Texas field under the exception to Rule 37 to prevent waste. It has from time to time fixed the total allowables for all wells within the market demand and prorated that amount among the producers. It is a matter of common knowledge that by restricting allowables and shut-down periods the Commission has continuously kept production of oil within market damand. In any event, no showing is made in the instant case that production has exceeded the market demand and caused the dire waste feared by the majority; and in absence of such showing the Commission will be presumed to have done so. Obviously, the issue of market demand waste is purely a fiction in this case.
Not only does the majority view disregard all recent holdings of the Supreme Court with reference to the proper interpretation of Rule 37, but it also disregards such holdings as to the proper jurisdiction of the district court in reviewing Rule 37 orders. The majority view holds that the sufficiency of the evidence to sustain an order of the Commission granting a permit to drill an oil well as an exception to prevent waste must be determined “under the rules of evidence as in other cases” and that “the court, or jury, must as in other cases, pass upon the credibility of the witnesses and the weight to be given their testimony.” This holding is in direct conflict with the holdings of the Supreme Court in the recent cases of Gulf Land Company v. Atlantic Refining Company, 134 Tex. 59, 131 S.W.2d 73, and Lone Star Gas Company v. State, 153 S.W.2d 681, 696, wherein the Supreme Court holds that' Rule 37 is “an administrative matter”; and that “a court is not an administrative agency, and therefore in administrative matters it does not substitute its judgment and discretion for the judgment and discretion of a duly constituted administrative agency of the State.” In this same opinion the Supreme Court reaffirms what it said in the Gulf Land Company case as follows: “The very basis of the rule announced in the Gulf Land Company case that the findings of the Commission are final on disputed matters of fact, is that the court is not an administrative body. We still adhere to the views we expressed in the Gulf Land Company case as applied to the fact findings of the Commission in instances where it acts as an administrative board or commission.”
That the holdings of the majority view are directly and diametrically opposed to the quoted holdings of the Supreme Court is so clear that further discussion of the matter is unnecessary.