Court Opinion

ID: 9539004
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:45:20.831199+00
Date Added: 2024-06-11T14:58:23.107426
License: Public Domain

OPALA, Justice,
with whom HODGES, Justice, joins, dissenting.
The dispositive issue in this case is: May the Corporation Commission [Commission] decide a controversy between a working interest owner and a well operator who was appointed under a voluntary pooling agreement to which the working interest owner was not a party? The court’s decision places the dispute beyond the jurisdiction of the Commission and within the cognizance of the district court. Because the controversy calls for an exercise of regulatory power over correlative rights of mineral, royalty and working interest owners within a spacing unit established by the Commission, and the aggrieved party had not entered into the voluntary pooling agreement under which the well operator in question manages production, I dissent from today’s pronouncement.
I
THE DISPUTE
The dispute focuses on Samson’s [petitioner’s] operation of a well drilled within a Commission-created spacing unit [the Guenzel well] under authority cf a voluntary pooling agreement. Tenneco [respondent] contended that because of Samson’s greater financial interest in a less-productive adjoining well [the Abraham well], Samson was operating that well at higher profit and to the detriment of the superior-capacity Guenzel well, thus draining the common source of supply and injuring correlative rights of working interest owners, royalty owners and lessors within the spacing unit. Samson has a twenty-five percent interest in the Abraham well, but none at all in the Guenzel well. Urging that this ownership pattern had led Samson to adopt production methods injurious to Tenneco and to other interest holders, Tenneco invoked the Commission’s power to determine whether correlative rights of owners were being harmed under Samson’s management; and if so, it asked that, in order to avoid waste and to protect the correlative rights of all interest owners, Samson be removed as operator and Tenne-co substituted in its place.
Samson couched its counterargument in terms of private contract, contending that the dispute could not involve correlative rights because it arose under agreements among the parties. Samson further argued that the Commission was powerless to appoint an operator for a well drilled under a voluntary pooling agreement.
The agreements to be considered are: (1) a voluntary pooling agreement designating Samson as operator, signed by most of the working interest owners but not by Tenne-co; and (2) a farmout agreement between Tenneco and Samson. The latter agreement farmed out Tenneco’s acreage to Samson, assigning to it interests in Tenne-co’s oil-and-gas leases; reserved an overriding royalty interest (convertible to a working interest after payout); provided that, on payout, Tenneco would execute a “joint operating agreement” (and designate Samson as operator) and would abide by certain provisions for replacement of the unit operator. Tenneco never executed the post-payout joint operating agreement.
Looking solely to the agreements, Samson now contends that this is merely a private dispute which focuses on which party should “frac” 1 the Guenzel well, and that its obligation to the interest owners does not fall under the public-interest principle of correlative rights. According to this argument, if no public interest is involved, any possible violation of the agree*25ments would come within the district court’s, not the Commission’s, power to decide.
Samson posited below that Tenneco’s sole remedy before the commission, in the event of drainage, was to seek adjustment of allowables within the common source of supply under 52 O.S. 1981 § 87.1(a).2 The section Samson invoked authorizes the Commission to “take such other action as may be necessary to protect the rights of interested parties.... ” Hence, adjustment of allowables (which is not a mandatory measure), does not preclude the Commission from effecting a change of operator— the remedy Tenneco was seeking. When the Commission ruled it had jurisdiction and began hearing evidence, Samson sought a writ in this case to halt further action. This court then granted a temporary stay of proceedings before the Commission pending a resolution of the jurisdictional question.
II
CORPORATION COMMISSION JURISDICTION
The outer limit of the Commission’s cognizance in the exercise of its regulatory power has been the subject of continuing controversy in the legal community and scrutiny by this court.3 Statutory enactments endow the Commission with specific authority over production and conservation of oil and gas.4 Involuntary pooling of mineral interests, when necessary to prevent waste and to protect the correlative rights of mineral owners, is well established as a valid exercise of state police power in conserving natural resources.5 The Commission may lawfully apply its power in regulating the drilling of wells within a common source of oil-and-gas supply and in distributing production among the mineral owners.6 The legislature’s authority to enact statutes in the exercise of state police powers is a recognized part of the law in existence whenever a contract is executed. In contemplation of law these statutes become incorporated as a part of any specific contract.7
The Commission has exclusive authority to regulate oil-and-gas conservation and to oversee the drilling and operation of wells.8 It may confer operator status within the unit of its creation which cannot later be transferred by private contract, but only *26upon approval of the Commission after due notice and adversary hearing.9 On entry of a drilling and spacing unit order, all royalty interests within the unit become pooled as a matter of law, while working interests are pooled either by voluntary agreement or by a Commission-imposed order.10 Lessees and other interest owners in a drilling and spacing unit share in production as of the time the unit is established.11 This is so because, on commencement of production, there is immediate drainage toward the producing unit well from areas where the owners are legally unable to guard against its occurrence. The purpose of involuntary pooling is to protect and compensate the owners within a unit for production they themselves may not seek or achieve.12
The Commission’s regulatory power to prevent waste and protect correlative rights continues beyond the establishment of a drilling and spacing unit under circumstances that may result in the drilling of additional wells,13 compulsory pooling,14 and the adjustment of allowables.15 The Commission may allow the drilling of additional wells within a unit. This demonstrates its authority to protect owners within one unit from action by others within another unit.16 If there had been a forced pooling of the interests here involved, no question would have arisen as to the presence of the Commission’s authority.17
Ill
VOLUNTARY v. INVOLUNTARY POOLING AGREEMENTS: THEIR EFFECT ON CORRELATIVE RIGHTS
Samson rests its argument on the voluntary nature of the pooling agreement, maintaining that voluntariness of the agreement impressed the contracts with a “private” nature, as distinguished from a “public” character underlying the statutory language of “waste” and “correlative rights”. This is a circular argument which begs the question and further clouds the problem of dichotomous court/agency jurisdiction which this court is called upon to resolve with increasing frequency.18
*27As a nonparty to the voluntary pooling agreement, who became aggrieved by the activities of the operator, Tenneco could not enforce the private contract. Tenne-co’s noncontractual status prompted its attempt to seek removal of the present operator by order of the Commission. Whether this change is in fact necessary to protect correlative rights of the mineral owners is a litigable issue not before us here. This is so because the Commission has yet to complete its investigation into the facts. The core issue is whether the Commission has authority, stemming from its prior formation of a drilling and spacing unit, to adjudicate disputes over removal of any operator in the interest of prevention of waste and protection of correlative rights. I firmly believe the Commission has the adjudicative power Tenneco invoked.
To fulfill the imposed duty properly to oversee the conservation of oil and gas, the Commission must be allowed to exercise its authority with teeth that will give practical effect to the statutory language and clear legislative intent. The “teeth” are yanked forcibly from the Commission when this court interferes and strips that body of powers flowing directly from its plain, statutory mandate.
This dispute clearly presents a matter involving “correlative rights” and potential waste.19 The undisputed purpose of spacing units and the setting of allowables under 52 O.S. 1981 § 87.1 is to preserve our limited natural resources. Injury to the common source and taking oil or gas in undue proportions are surely matters that fall as much under the protective cognizance of the Commission as does the prohibition against drilling unnecessary wells. Today’s decision will undermine the “correlative rights” concept and thus partially emasculate those powers lawfully conferred upon the Commission by the legislature.
Powers flowing from the terms of a compulsory pooling order, indisputably within the ambit of the Commission’s powers, are recognized by our law.20 In my view, the Commission has the same authority under voluntary pooling arrangements as well, and may replace the unit operator when there is a dispute occasioned by operations injurious to correlative rights. It strains credulity to reflect that interest owners might, as a last resort, be forced to petition the Commission for the drilling of additional wells to prevent the drainage which they are unable to stop by a less costly and drastic step — a change of operator.
This court has held that operators are under a duty to manage the leaseholds as a unit and to safeguard correlative rights of the various interest holders.21 A mineral lessor may enforce a lessee’s implied covenant to develop a lease as a prudent operator, including the duty to protect against *28drainage by the lessee’s other operations.22 The court acknowledges these facts and states that the interest holder in a unitized section has a right to enforce the unit operator’s duty to conduct operations in a prudent manner. But these statements cannot exist in a vacuum. They must be given practical application within the powers granted to the Commission, lest the rights develop into a sprawl of unanswered questions in the minds of interest holders and their legal counsel. If the present circumstances were duplicated in a compulsory pooling scenario, they would doubtless be conceded as sufficient to call for protection of “correlative rights”. The voluntary pooling order, which serves the same purpose within the spacing unit, cannot be said to transmute the character of the controversy solely on the basis of its verbal costume.
IV
SUMMARY OF JURISDICTIONAL ANALYSIS

Tenneco was not a party to the pooling agreement that appointed Samson as operator. Tenneco cannot sue ex contractu in the district court. Nor can it press for Samson’s discharge of its responsibility under some compulsory pooling order. There was none. The relief Tenneco invoked was to remove Samson, as operator, for breach of its law-imposed duty to protect the correlative rights created in a spacing unit by the Commission’s order. Tenneco’s claim was neither in damages for misfeasance nor for the performance of some contractual duty. Rather, it was for breach of Samson’s public-law duty, qua operator within a Commission-created spacing unit, to act with due regard for the correlative rights of the interest holders. In short, Tenneco called for an exercise by the Commission of its regulatory powers over production activities which the agency is authorized, if not required, to monitor.

23

Because the Commission did not improperly exercise its authority over this controversy, I would hold that this court should assume original jurisdiction, dissolve the temporary stay order and deny the writ.

. The term "frac” is used in the oil-field parlance. It is a corrupt form of the verb "to fracture". The scenario that unfolded ascribes the drainage of the Guenzel well to Samson’s “fracing” of the Abraham well. Both Samson and Tenneco want to take charge of the Guenzel fracing operation.

. The terms of 52 O.S. 1981 § 87.1(a) provide in pertinent part:
“To prevent ... the various types of waste of oil or gas prohibited by statute, ... or to protect ... the correlative rights of interested parties, the Commission, ... shall have the power to establish well spacing and drilling units ... covering any common source of supply, ... provided further that the Commission shall adjust the allowable production within said common source of supply, ... and take such other action as may be necessary to protect the rights of interested parties_”

. See, Tenneco Oil Co. v. El Paso Natural Gas Co., Okl., 687 P.2d 1049 [1984] (Opala, X, dissenting — see footnote 4); see also, Barnes, Interpretation of Corporation Commission Orders: The Dichotomous Court/Agency Jurisdiction, VIII Okla.City L.Rev. 311 [1983]; Chatfield, Subject Matter Jurisdiction of the Oklahoma Corporation Commission: Tenneco Oil Co. v. El Paso Natural Gas Co., 19 Tulsa L.J. 465 [1984]; Hart, Interpreting Corporation Commission Orders— Should the Commission be a Spectator or a Player? 48 Okl.B.J. 1343 [1977],

. 17 O.S.1981 §§ 51, 52; 52 O.S.1981 §§ 81 through 287.15.

. 52 O.S.1981 § 87.1; Anderson v. Corporation Comm’n., Okl., 327 P.2d 699, 702, 703 [1958]; Wakefield v. State, Okl., 306 P.2d 305, 308 [1957]; Crest Resources v. Corporation Comm’n., Okl., 617 P.2d 215, 217 [1980]; Miller v. Corporation Comm’n., Okl., 635 P.2d 1006, 1007 [1981],

. Patterson v. Stanolind Oil & Gas Co., 182 Okl. 155, 77 P.2d 83, 89 [1938], appeal dismissed, 305 U.S. 376, 59 S.Ct. 259, 83 L.Ed. 231 [1939]; Ward v. Corporation Comm’n., Okl., 501 P.2d 503, 508 [1972]; Helmerich & Payne, Inc. v. Corporation Comm’n., Okl., 532 P.2d 419, 422 [1975].

. Sunray DX Oil Co. v. Cole, Okl., 461 P.2d 305, 309 [1969], cert. denied 396 U.S. 907, 90 S.Ct. 223, 24 L.Ed.2d 183 [1969].

. 17 O.S.1981 § 52; Stipe v. Theus, Okl., 603 P.2d 347, 349 [1979].

. Crest Resources v. Corporation Comm’n., supra note 5 at 217 and 218.

. Petroleum Reserve Corp. v. Dierksen, Okl., 623 P.2d 602, 605 [1981].

. Ward v. Corporation Comm’n., supra note 6 at 507.

. Ward v. Corporation Comm’n., supra note 6.

. Spaeth v. Corporation Comm’n., Okl., 597 P.2d 320, 321 [1979].

. Crest Resources v. Corporation Comm'n., supra note 5 at 216; Miller v. Corporation Comm’n., supra note 5 at 1007.

. Kingwood Oil Co. v. Corporation Comm’n., Okl., 396 P.2d 1008, 1011 [1964]; Dodds v. Ward, Okl., 418 P.2d 629, 633 [1966]; Sohio Petroleum Co. v. Parker, Okl., 319 P.2d 305, 309 [1957].

. Spaeth v. Corporation Comm’n., supra note 13 at 322.

. Post-order activities are within the Commission’s cognizance. See Chancellor v. Tenneco, Okl., 653 P.2d 204 [1982]; Crest Resources v. Corporation Comm’n., supra note 5; Stipe v. Theus, supra note 8; Shell Oil Co. v. Keen, Okl., 355 P.2d 997 [1960]; Cabot Carbon Co. v. Phillips Petroleum Co., Okl., 287 P.2d 675 [1955]. Recent jurisprudence from this court limits district court power over Commission orders to ascertaining whether the order is facially void. Gulfstream Petroleum Corp. v. Layden, Okl., 632 P.2d 376 [1981] and Chancellor v. Tenneco, supra at 207; see also, McDaniel v. Moyer, Okl., 662 P.2d 309, 312-313 [1983], The provisions of both our constitutional and statutory law prohibit the district court from declaring rights in Commission orders. Art. 9 § 20, Okl. Const.; 12 O.S.1981 § 1657. Art. 9 § 20 of our Constitution denies to all courts, except the Supreme Court, the power to review Commission orders. Commission orders made pursuant to the oil- and-gas conservation statutes may be reviewed only in the Supreme Court. See 52 O.S.1981 §§ 111 and 113. See also, Woods Petroleum Corp. v. Sledge, Okl., 632 P.2d 393, 394 [1981].

.This controversy clearly is distinguishable from that considered in Tenneco Oil Co. v. El Paso Natural Gas Co. See, Tenneco Oil Co. v. El Paso Natural Gas Co., supra note 3; see also, Barnes, Interpretation of Corporation Commission Orders: The Dichotomous Court/Agency Jurisdiction, supra note 3; Chatfield, Subject Matter Jurisdiction of the Oklahoma Corporation Commission: Tenneco Oil Co. v. El Paso Natural Gas Co., supra note 3; Hart, Interpret*27ing Corporation Commission Orders — Should the Commission be a Spectator or a Player?, supra note 3.
Here, Tenneco does not seek to enforce any contractual liability claimed to be owed by Samson. Rather, what Tenneco invokes is the shield of the Commission’s regulatory power to protect correlative rights of the owners in a spacing unit already established through prior interposition of public authority. 52 O.S.1981 § 87.1(e).

.Our jurisprudence states that each mineral interest owner in a common source of supply "has legal privileges as against other owners ... to take oil and gas ... limited, however, by duties to other owners not to injure the source of supply and by duties not to take an undue proportion of the oil and gas ”. [emphasis supplied] Kingwood Oil Co. v. Corporation Comm’n., supra note 15 at 1010. We have also said that “a common source of supply in which the owners of mineral interests possess correlative rights is the underlying geological strata ...” [emphasis supplied] Tenneco Oil Co. v. El Paso Natural Gas Co., supra note 13, footnote 11. A common source of supply is artificially created, through the exercise of state regulatory power, by a Commission order placing a land area within one spacing or drilling unit.

. See Amarex, Inc. v. Baker, Okl., 655 P.2d 1040, 1045 [1983] and footnote 17, supra.

. Crest Resources and Exploration Corp. v. Corporation Comm’n., supra note 5 at 218.

. See Dixon v. Anadarko Production Co., Okl., 505 P.2d 1394 [1973],

. Today’s opinion deprives Tenneco of the opportunity to secure the Commission's decision upon its claim that Samson has invaded Tenne-co’s protected interests in the pooled royalties which were established by a prior pooling and spacing order. Tenneco is compelled to seek relief in the district court, although that tribunal is without authority to declare rights claimed in a Commission order. 12 O.S.1981 § 1657; Woods Petroleum Corp. v. Sledge, supra note 17.