Court Opinion

ID: 9527295
Source: CourtListenerOpinion
Date Created: 2023-08-07 03:29:20.274856+00
Date Added: 2024-06-11T13:25:41.721886
License: Public Domain

Roberds, P. J.,
dissenting.
I am now convinced that the prudent operator test, as announced in the controlling opinion, in which I concurred, was erroneous, and that the rule announced in the minority opinion is correct. I now join and concur in the minority opinion.
I am also of the opinion that the implied covenant upon lessees to protect lessors against drainage has no application where the draining well is located upon an established spacing unit and the producer has acted in good faith and has complied with all the rules and regulations of the State Oil and Gas Board, as are the facts in the case at bar.
The Legislature has assumed extensive powers and controls over the production and apportionment of oil and gas. By its statutory enactments it has declared the *40public policy of the state to be to encourage and promote development, production and utilization of the natural resources of oil and gas, and to protect the public and private interests against waste, to work out the coequal and correlative rights of owners in a common source or pool of oil and gas so that each owner may obtain his equitable share of production. It created the State Oil aiid (las Board and vested in it far-reaching powers. The Board has the power to regulate the production of oil and gas so as to prevent waste; to adopt reasonable rules and regulations for the drilling and production of oil and gas; to regulate the spacing of wells and to establish drilling units; to allocate and apportion the production of oil and gas for the prevention of waste, “and to allocate such production among or between tracts of land under separate ownership in such pool on a fair and equitable basis”; to regulate the drilling and location of wells in any pool and the production therefrom; to enforce the correlative rights of owners in any pool. If separate owners of tracts do not unitize their lands the Board has the power to require them to integrate their lands into a unit but if they do not do so the Board itself can do that. Where lands within the unit are owned by separate persons the Board can require the operators, when due request is made by the owner, to deliver to such owner or his assigns his proportionate share of the production from the well common to such drilling unit. The allocation or apportionment of production “shall be made on the basis of and in proportion to the acreage content of the drilling units prescribed for the producing horizons for the pool, so that each such prescribed unit shall have the same opportunity to produce the same daily allowables.” The Board is authorized to grant exceptions to the unit established by it to prevent waste and to protect and enforce the correlative rights of the owners in the pool and the production therefrom so that each owner has the right *41and opportunity to recover his share of the recoverable oil and gas in the pool. The Board has other powers and duties but those enumerated are sufficient to establish the fact that such powers are extensive and far-reaching. Chapters 117 and 129, Laws of 1932; Chapter 154, Laws of 1934; Chapter 305, Laws of 1936; Chapter 233, Laws of 1944; Chapter 450, Laws of 1946, all repealed May 9, 1948, by Chapter 256, Laws of 1948; Chapter 220, Laws of 1950. These laws have been held constitutional, and that largely because oil and gas are fugacious substances by nature, the ordinary rules of property ownership being difficult of application to them, and further because of their rare economic value to the general public, the possibility of exhaustion, and the wisdom of proper production and prevent from waste. Superior Oil Co. v. Foote, 214 Miss. 857, 59 So. 2d 85; Humble Oil & Refining Co. v. Welborn, 216 Miss. 180, 62 So. 2d 211.
On September 11,1947, the Oil and Gas Board adopted statewide rules for the regulation of oil and gas production and apportionment thereof in Mississippi. They provided that a unit should consist of forty contiguous surface acres, or a government quarter section of not less than thirty-six acres, upon which only one producing oil well should be located, such well not to be closer to the exterior boundaries of the unit than 330 feet and no closer than 660 feet from any other drilling or producible well. These rules then provide “No portion of the drilling unit upon which the well is located shall be attributable in whole or in part to any other drilling or producible well in the same reservoir.” The rules provide for the granting of an exception to prevent waste “or to prevent confiscation of property of applicant.”
On October 29, 1948, the Board adopted new statewide rules. These rules contained substantially the same unitizing and spacing provisions as the 1947 rules, and the only provision deemed necessary to mention here is this; “No portion of a drilling unit upon which the well *42is located shall be attributable in whole or in part to any other drilling or producing well in the same pool.”
On July 21, 1949, the Board adopted special rules for the Pine Ridge Field. The petition was filed by Phillips Petroleum Company. It had attached thereto a plat of the field. This plat showed the field consisted of some 400 acres. It stated that the pool was composed of some 400 acres divided into eight 40-acre units and two units of 39 acres each. It contained an outline of each unit, the acreage content thereof and the names of the owners thereof. It showed the Millette land as adjoining, but outside of, the field. It was not within a unit. The plat showed the location of the wells drilled, or to be drilled, on the units, including the location of the Hence, Carter (apparently same as Sylvester) and Artman wells. The petition prayed for special rules for that field and for allowables and allocation of production therefrom. A hearing was had and proof taken at this hearing. The Board entered an order on this petition, the parts thereof pertinent to this discussion being: It defined a basic drilling unit to contain 40 “contiguous surface acres,” provided the distance between any two points did not exceed 2,100 feet, and that no well should be located nearer than 330 feet of any boundary line of the unit, and not less than 660 feet from every other well. It expressly approved and confirmed “all drilling units heretofore drilled or permitted in said Field.” It recited “The production from each well shall be based on the number of acres in the drilling unit, whether fractional or not.” It contained this further provision, “No portion of the drilling unit upon which the well is located shall be attributable in whole or in part to any other drilling or producible well in the pool * *
Due notice by publication was given to all interested parties of the time and place of the meetings at which the foregoing statewide and special field rules and regulations were adopted. Millette did not undertake to assert *43any right, or contention, at any of these meetings, nor did he ask the Board to make an exception in his case, nor did he appeal from the action of the Board.
Permits were granted by the Board in 1948 to drill the Hence, Artman and Carter wells. The applications for the permits showed the location of each unit, the boundaries thereof, the owners, and the location of the Millette property as adjoining, but outside of, the units. Each disclosed the location on the unit of the well proposed to be drilled, and the distance from each proposed well to the boundary line of the unit. For instance the Art-man well was not to be nearer the line than 660 feet. The three wells were drilled shortly after issuance of the permits and all were drilled at the locations, and the distances from the property lines, in accordance with the permits and production payments have been made on comparative surface acreage basis within the units.
The reasons, among others which might be mentioned, for concluding that the implied covenant prohibiting depletion by lessee of drainage from lands of lessor has no application where lessee acts pursuant to and in accordance with the rules and regulations of the Oil and Gas Board, no bad faith being involved, are:
First, the Conservation Act itself vests in the Board the power and imposes the duty to "allocate such production among or between tracts of land under separate ownership in such pool on a fair and equitable basis,” and such allocation or apportionment of production "shall be made on the basis of and in proportion to the acreage content of the drilling units prescribed for the producing horizon for the pool, so that each such prescribed unit shall have the same opportunity to produce the same daily allowables.” In other words, the'allocation shall be on the basis of the comparative surface acreage in each unit.
Second, the rules adopted by the Board, both statewide and for Pine Ridge Field, provide that "No portion of *44the drilling unit upon which the well is located shall be attributable in whole or in part to any other drilling or producible well in the same reservoir (pool)”; and the special rules and regulations for Pine Eidge Field provided “The production from each well shall be based upon the number of acres in the drilling unit, whether fractional or not.”
Third: In Humble Oil & Refining Co. v. Welborn, 216 Miss. 180, 62 So. 2d 211, this Court held that Welborn would not be permitted to prove that his land contained more oil than other lands within the unit, and denied his contention that he was entitled to a greater proportion to oil allowables than other owners within the unit whose lands were not as productive of oil as his lands. The case quoted the statute to the effect that£ £ any allocation or proportionment of production shall be based on the basis of and in proportion to the acreage content of the drilling units prescribed for the production horizon for the pool.” The Board had fixed compensation upon the basis of comparative acreage ownership.
Fourth: This Court has held that production on any part of the unit extends and perpetuates leases on other separately owned lands within the unit, although there is no actual, or contemplated, drilling upon such other lands. Superior Oil Co. v. Beery, 216 Miss. 664, 63 So. 2d 115; Texas Gulf Producing Co. v. Griffith, 218 Miss. 109, 65 So. 2d 447.
In the Beery case, supra, the opinion states that one contention made by Beery was “ (1) that he was entitled to recover on the ground that the appellant, as lessee of the 50-acre tract, had violated its duty under its leases not to impair the value thereof, in that it had drained, and is still draining, gas from the 50-acre tract through the unit well on the Dale tract.” In responding to that contention this Court said: “The Dale well was drilled at a distance of approximately 1,000 feet from the 50-acre tract in question which is situated in the SW% of *45Section 28, and it would seem that no obligation implied by law to protect the leased premises from drainage was violated where the same lessee also held a lease on the Dale tract and drilled the well thereon under the express authority of the Dale lease, and where under the conservation laws of the State, subject to which appellee had purchased his mineral interest, the lessee of the 50-acre tract was prohibited from drilling an off-set well thereon. In other words, since no express provision of the lease from Walker to Gholson was violated, it would seem that there would be no liability on the first theory of the amended bill of complaint, since the obligation implied by law to protect against drainage is inapplicable where the lawful rules and regulations of the State Oil & Gas Board for the conservation of oil and gas are eomplied with. ” It is true that in the case at bar Phillips was not prohibited from drilling an off-set well, but the chancellor held he was under no duty to do so.
In 58 C. J. S., page 628, the statement is made “ * * * that the drainage area of a well is equivalent to the spacing area prescribed by the rule.”
Fifth: The stated conclusion would seem inevitable from a practical standpoint. If every marginal owner is permitted to institute litigation each time a witness may give it as his opinion that some oil is being drained from the marginal land through a well on the unitized tract confusion will be confounded in the production of oil and gas. This case illustrates that. The Artman well, through which it is claimed Millette oil is being drained, was drilled in 1948. The amended bill of complaint was filed herein in March 1951. Phillips, the producer, had paid all royalties to the owners in the unit. If he has to pay Millette $12,500.00 he will have paid this amount twice. He has overpaid the unit owners. Apparently he should have a right of action to recover that back from such unit owners. If obligations are to be changed and varied in this manner, then Millette *46should have made all unit owners parties to his litigation. There may be, for all that is shown, other marginal owners who can assert claims against the producer. How many is not shown. Conceivably there might be a dozen marginal owners bringing litigation at any time before the running of the statute of limitations. In any litigation pertaining to production in the unit all unit owners and all marginal owners will need to be made parties. The driller will have to interplead all marginal owners if he is to be protected. If he must pay unit owners on an acreage basis within the unit and then pay marginal, or adjoining, owners whatever they may recover, then no producer could possibly know his liabilities or money obligations, regardless of the terms of his lease. In the case of gas liability might extend far beyond adjoining, or marginal owners, gas possessing by nature greater migratory qualities than oil. This, it would seem, may prove disastrous to the oil and gas industry of the State.
Appellee was not without remedy if in fact his oil has been drawn through a well on the unit. He had his remedy under the prudent operator rule had circumstances been such as to require the drilling of a well on his land. He also had the right, and, no doubt, would have been given the opportunity, to show the Board he was entitled to an exception from the general spacing rules, and, in case of refusal, a right to appeal to the circuit court and then to this Court.
It should be added that the question just discussed was raised for the first time on the suggestion of error; therefore, it was not dealt with in the learned majority opinion. Ordinarily we do not take note of propositions raised for the first time on suggestions of error. However, we may, and usually will, do so where decision of the question is of grave importance to the public and affects the rights of many people who are not parties to *47the litigation. Supreme Court Rule 6; Robbins v. Berry, 209 Miss. 422, 47 So. 2d 846; Wright v. I. C. R. Co., 196 Miss. 150, 16 So. 2d 381.