Court Opinion

ID: 9443314
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:17:30.835406+00
Date Added: 2024-06-11T17:15:32.854865
License: Public Domain

HUXMAN, Circuit Judge
(dissenting).
To me the question seems somewhat different than as stated in the majority opinion. I would state the problem as follows: After the execution of a single oil and gas lease covering a 640 acre tract, does the subsequent sale and assignment of mineral interest by the lessor in separate parts of *651the tract deprive the Corporation Commission of power under the Kansas Conservation Law to fix an allowable for a single well that will not only conserve the common source of supply of gas, but will also protect the correlative rights of all those who now have an interest, by assignments from the lessor, in the gas being produced from different parts of the tract.
I am not ready to say that Kansas has not empowered its Corporation Commission to impose involuntary unitization on separately owned tracts. However, in my view, it is not necessary to consider whether this is the intent and purpose of the Kansas law. The first general order by the Corporation Commission contained a provision for involuntary unitization. This was subsequently eliminated. But because the Commission eliminated this provision from the basic order does not determine that the law does not contemplate such power, if necessary, to effectuate the double purpose of the law of preventing waste, provide for ratable taking and protect the correlative rights of all interested parties. Apparently, the Kansas Supreme Court has not been called upon to consider this question.
We are not dealing here with separately owned gas leasehold estates nor with mineral interests whose consent to an oil and gas lease was necessary at the time the lease was executed. We are dealing with one unit of production of 640 acres, covered by a single oil and gas lease.
I-f we view the picture as of the date of the execution of the lease, the Corporation Commission’s order carried out the mandate of the conservation law. In fixing the allowable for this well, the Commission considered the 640 acre tract as a production unit held under a single lease. It took into consideration the rights of the unit to production from the common pool with respect to other like units of production. It also took into consideration the fact that gas was being produced from the entire tract through the one well on the Southeast Quarter. It fixed an allowable based upon production from the entire tract and in an amount which would return to. the lessor and the lessee their fair share of gas recovered from the entire tract. Hicks could not have demanded that Republic drill other wells. No drainage was taking place. The conservation law took from Hicks his right to demand the drilling of additional wells, under the theory that a lessor has a right not only to be protected from drainage, but also has the right to demand full development of the entire tract in an orderly and expeditious manner. The intent and effect, indeed the purpose, of the allowable fixed for this well was to return to Republic its fair share of production from the 640 acres with respect to surrounding tracts and to return to the interested royalty holders (in this case Hicks) his share of royalty production from the entire tract.
Had Hicks remained the owner of the entire royalty interest, he would have received the royalty resulting from the production from the entire tract. When subsequent to the execution of the lease he assigned royalty interest in severalty under different parts of the unit, his assignees stepped into his shoes and acquired all his rights against the lessee.
The royalty holders have only such rights under the one lease as their assignor had. We are not dealing with separate tracts or separate royalty interests in the sense that the holders thereof must execute oil and gas leases. These royalties all stem from Hicks’ interest retained by him under the lease. To hold that the Corporation Commission may not consider this 640 acre tract covered by one valid lease as a unit of production and protect the correlative rights of the lessor and the lessee, as well as those who come in by assignment, from either of them is to deprive the Commission of all power to carry out the policy of the conservation statute looking to the elimination of waste, unnecessary and wasteful drilling of innumerable wells and yet protect the correlative rights of all interested parties.
What would be the situation if after the execution of this lease Hicks had assigned royalty interests in 10 acre tracts to 64 different persons ? What kind of an allowable could the Corporation Commission fix for this one well that would protect Republic’s rights as well as the rights of Hicks *652and liis assignees? Would it grant an allowable to 64 wells ? If so, how would that affect Republic’s rights under the lease? Or, would it fix an allowable based upon a consideration qf only the 10 acre tract on which the well was located and thus drastically reduce the amount of gas Republic was entitled to produce from this well under the covenants' of its lease, or would it fix an allowable based upon the 640 acre tract and permit the fortunate one on whose 10 acre tract the well was located to drain and receive all the gas from the remaining 630 acres?
It is not as stated in the majority opinion a question of “power in the regulatory bodies or the courts to take the property of one party and give it to another”. It is rather a question whether the conservation statute does not give the Corporation Commission power to fix an allowable sufficiently large so as to not only return to the royalty holder on whose acreage the well is located the gas which comes from his acreage, but also permit gas from the other acreage covered by the same lease to flow through this well and permit the royalty holders thereof to receive that which comes from their land. How can such an order be said to invade the property rights of any one. The allowable in this case was based upon the production of gas from the property of all the interested parties. Republic’s position simply is that in conformity with the spirit and intent of the allowable, as fixed by the Commission, it should pay this royalty to those from whose property it came. Baker does not contend that the allowable fixed in this case contemplates production from his acreage alone or that as a royalty holder under the Southeast Quarter only he is entitled to an allowable for the well, based upon a consideration of production from the entire tract. In his brief he states that “Basically, Baker’s position is that he is not concerned with the amount of production from the well. If it is entitled to only a 160 acre allowable, that is a situation about which he does not complain. It is a matter for the attention of the Commission.” That might do very well if his Interest 'was thé only one entitled to consideration, but under the law it was the Commission’s duty to consider the correlative rights of all parties who have an interest under the lease. Baker may not insist even if this contention is to be given serious consideration that Republic be cut down to an allowable of of what it is entitled to produce under the lease with Hicks, so that he coming in under Hicks, after the execution of the lease, may deprive the other royalty holders from receiving through this one well the gas, coming from their acreage. This was what the Kansas Gas Conservation Law sought to remedy. To this;extent at least, in my opinion, it modified the'harsh law of the' tooth and the claw as announced in Carlock v. Krug, 151 Kan. 407, 99. P.2d 858, and kindred cases.