Court Opinion

ID: 3907502
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:36:43.501065+00
Date Added: 2024-06-11T14:15:57.790128
License: Public Domain

The writer again dissents from the majority interpretation of Rule 37 as being a fact finding by the Commission that wells drilled closer than 660 feet will cause physical waste of oil. Such interpretation was made in the Sun Case, Sun Oil Co. v. Railroad Commission, Tex. Civ. App.68 S.W.2d 609; the Atlantic Case, Atlantic Oil Production Co. v. Railroad Commission, Tex. Civ. App. 85 S.W.2d 655; the Marathon Case, Railroad Commission v. Marathon Oil Co., Tex. Civ. App. 89 S.W.2d 517; the Magnolia Case, Magnolia Pet. Co. v. Railroad Commission, Tex. Civ. App.105 S.W.2d 787, and is in effect reiterated in the instant case, notwithstanding the Supreme Court expressly overruled the majority interpretation in the Magnolia Case, Railroad Commission v. Magnolia Pet. Co., 109 S.W.2d 967. The Supreme Court has also recently granted a writ of error in the Gulf Case, Railroad Commission v. Gulf Production Co., Tex. Civ. App. 115 S.W.2d 505, wherein the majority adhere to their former interpretation of the rule; still the majority persist in making the same interpretation in the instant and other recent cases.
By its order of August 26, 1935, the Commission took direct issue with the majority interpretation of Rule 37, declared that it had never interpreted nor intended the rule as a fact finding that wells drilled closer than the spacing distances therein prescribed would cause waste of oil and gas. The Commission further expressly found upon evidence adduced at its many hearings and from its actual experience, and through its experts continuously employed in the administration of the rule, that the closer wells are drilled the greater will be the ultimate recovery of oil and gas from any area so drilled, provided the wells produce equally; and closer spacing is accomplished through the application of the exception to the general rule to prevent waste, or to prevent confiscation. If more oil will be recovered from denser drilling, then failure to so drill will necessarily result in waste of oil and gas left in the ground; and in consequence will also result in confiscation of the oil through failure to enforce the exceptions to the rule so as to recover the greatest amount of oil under any given tract of land or area.
The Commission has developed the East Texas Oil Field in accordance with its aforementioned findings of fact and its *Page 202 
interpretation of its own rule to such an extent that only a few of the approximately 25,000 wells are spaced in accordance with the general distances prescribed by the rule. Of those facts and interpretation by the Commission the oil industry may take notice and contract accordingly. That is, if those engaged in the industry are required to take notice of Rule 37 in making and developing oil leases, then equity and fair dealing require that they may also take notice of the interpretation placed on the rule by the Commission and the manner of its enforcement of the rule and the exceptions. (The writer's views with respect to the majority interpretation of Rule 37 are expressed by dissenting opinions in the Magnolia Case, Tex. Civ. App. 105 S.W.2d 792; the Gulf Case, Tex. Civ. App. 115 S.W.2d 508, writ granted on the dissent; the Magnolia Case, Tex. Civ. App. 120 S.W.2d 548; Id., Tex. Civ. App. 120 S.W.2d 552, and the Tide Water Case, Tex. Civ. App.120 S.W.2d 548, which are here referred to.)
The majority necessarily struck down the permit to drill the well in question under their aforementioned interpretation of the rule, because the evidence upon which they base their decision is but a collateral attack upon the order of August 26, 1935, and the official fact findings therein stated, and which evidence is not sufficient in any event to overcome the prima facie validity of the permit in question, nor the judgment by the trial court sustaining the permit.
The majority opinion is based in the main upon the testimony of one expert witness of appellants, who testified in substance that, in his opinion, the well in question was not necessary to prevent waste; that water encroachment was "fingering" toward the well, because of density of drilling in that area; and that a map showing well locations on adjoining tracts showed that the well was not necessary under a per acre density comparison.
The testimony with respect to water encroachment as the result of density of drilling in the area of the well is merely a collateral attack upon all wells drilled in the area, and over the drilling of which appellee has no control. The testimony of this expert witness is in direct conflict with the finding of the Commission that the well is necessary to prevent waste of oil.
The density of drilling map was not prepared from any actual location of wells on the ground, but from affidavits filed by appellants and others with the Commission, and which were put in evidence over the objection of appellee that same were hearsay. They were so and should have been excluded. Crosby v. Ardoin, Tex. Civ. App. 145 S.W. 709, error refused; Dunn v. Land, Tex. Civ. App. 193 S.W. 698; Beglin v. Metropolitan Life Ins. Co., 173 N.Y. 374, 66 N.E. 102.
As against the prima facie validity of the order granting the permit to drill the well in question the aforementioned evidence will not suffice; nor is it sufficient to set aside the judgment of the trial court holding the permit valid. If appellants may attack the permit at all, they must at least allege and prove facts which would clearly and satisfactorily show that the well was not necessary to prevent waste; that the additional well was not necessary in order to accord to the appellee its fair share of oil under its land in accordance with the density of drilling rule; and to further allege and prove that because of the well they are not getting their fair share of recoverable oil under their lands. In the absence of such proof it must be assumed in support of the validity of the order of the Commission that it knew bow many wells had been drilled in the particular area; knew all conditions as to water encroachment and well locations in the area; knew all conditions of drainage; and knew all matters pertaining to and surrounding the lands in the area. Railroad Commission v. Magnolia Pet. Co., Tex.Sup.,109 S.W.2d 967.
The voluntary subdivision rule as heretofore announced by this and the Supreme Court and as herein invoked by the majority has no application to the instant case, because under the undisputed facts, and in accordance with the presumption of validity accorded the permit, it may be assumed that the well in question was not granted to protect the 2.35-acre tract as the result of any condition existing at the time it was subdivided from the 6.88-acre tract in 1932; but became necessary to protect the 2.35-acre tract solely as the result of later changed conditions and because of later subdivisions over which appellee had no control and on which the Commission authorized wells which were draining the 2.35-acre tract at the time the permit was granted, and which later subdivisions and other adjoining tracts enjoyed a greater well density per acre than did the 2.35-acre tract. *Page 203 
The undisputed facts showed that after the 2.35-acre tract was subdivided from the 6.88-acre tract in 1932, the portion of the 6.88-acre tract lying east of the 2.35-acre tract was later subdivided into three tracts containing, respectively, 1 acre, .67-acre, and .9-acre. Likewise was the portion of the 6.88-acre tract lying west of the 2.35acre tract later subdivided into two tracts containing, respectively, .67-acre and .83-acre. Appellee Gulf Land Company had no part in, and is not chargeable with, any of these later subdivisions. When the permit was granted, a well had been authorized, drilled and was producing oil on each of these small subdivisions, and each well is within a few feet of the 2.35-acre tract. Offset wells on other tracts outside the 6.88-acre tract have been authorized and drilled and are within a short distance of the 2.35-acre tract in question. None of these wells, except two, are shown to have been authorized or drilled before the 2.35acre tract was subdivided from the 6.88acre tract in 1932. The 2.35-acre tract has one well while the average density of an eight times circular area surrounding it is one well to each 1.5 acres by reason of the authorized drilling aforementioned. So, the 2.35-acre tract is recovering only about one-half as much oil per acre per day as is being recovered on said surrounding acreage, and manifestly it is entitled to the second well in question here. In such situation the question of a voluntary subdivision before the changed conditions took place is not material.
The majority opinion does not discuss this question at all, although the facts are undisputed as above stated, and the question is copiously presented in the briefs of the parties; but the majority dismiss the subject of subdivision with the observation: "Gulf Land Company was charged with notice, when it acquired its leasehold, that such tract could not be developed without an exception to said rule, and consequently acquired no vested right to such an exception to prevent drainage." Manifestly this conclusion of the majority is but a collateral attack upon all wells drilled in the area under authority of the Commission, and over which appellee had no control; and is the interpretation of the rule by the majority as inhibiting forever any further development after subdivision. Such interpretation is in conflict with the opinions of this court, and particularly of the Supreme Court, in the several cases holding that changed conditions will authorize the drilling of wells as exceptions to the spacing rule. Magnolia Pet. Co. v. New Process Production Co., 129 Tex. 617, 104 S.W.2d 1106, wherein the court held [page 1111]: "If conditions change, rights change, and the governing statutes place the matter of ascertaining such rights and determining the facts relating thereto in the first instance under the jurisdiction of the Railroad Commission."
See, also, Stanolind Oil  Gas Co. v. Edgar, Tex. Civ. App.107 S.W.2d 631 and Stanolind Oil  Gas Co. v. Railroad Commission, Tex. Civ. App. 107 S.W.2d 633.
Manifestly the majority are in error in holding in substance that when Gulf Land Company acquired its lease in 1932, it was charged with notice that a great number of wells would later be drilled around its lease by virtue of future Commission orders, and as exceptions to the rule in reference to which it contracted, and that five such wells would be drilled on the 4.53 acres remaining out of the original 6.88 acres; and that it was compelled to foresee that the Federal Court would, thereafter, permit the Humphrey No. 1 to be drilled within a few feet of its line in a suit to which it was not even a party, and that the Commission would not appeal from such a judgment. To require this, is to require a man to contract with reference to a rule not yet made, and a situation not yet in existence. An entirely analogous requirement would be to say that he contracted with the knowledge that the Commission might later change its spacing rule and increase the prescribed distances; which this court held was not permissible. Humble Oil  Ref. Co. v. Railroad Commission, Tex. Civ. App. 94 S.W.2d 1197, error refused.
Neither the rule nor the decisions construing it prohibit subdivisions under any circumstances. The full extent to which either go is to prohibit, or limit, the right to acquire additional wells by reason of the subdivision. New Process Case, supra. Oil fields do not stand still. They are being continuously developed. And while appellee may not have been entitled to this additional well in 1932, when the subdivision of the 2.35-acre tract was made, such subdivision does not prohibit it from protecting its land or oil rights from disadvantages which did not exist when the subdivision was made, but which have been occasioned by subsequent Commission orders. In such a case, the additional well is not required by reason of the subdivision, *Page 204 
but by reason of Commission orders entered after the subdivision occurred. And no doubt the Commission has so developed the area under its official finding that the more wells drilled the greater will be the ultimate recovery of oil in any given field or area, provided they are drilled in accordance with substantial uniform spacing.
It is also the writer's view that in granting drilling permits as exceptions to Rule 37, the Commission is entitled to consider not only wells actually drilled on adjoining tracts, but also such wells as have been authorized but have not in fact been drilled at the time the permit is granted. If such view is correct, then appellants have failed to discharge the burden of proof resting upon them, in that they introduced no evidence whatever as to the number, or location, of wells authorized to be drilled but not then drilled in the area surrounding Gulf Land Company's lease, at the time the permit in suit was granted. Their own witness, Parker, testified that their maps only showed such wells as had actually been completed in the area under consideration. Other well permits may have been granted but not developed. This, of itself, is sufficient to compel an affirmance of the trial court's judgment.
The above conclusion is based upon the rule that the permits granted for the undrilled wells are prima facie valid; and that one whose rights are affected by the permits does not have to stand by until the prima facie validity of the undrilled permits may or may not be tested by the immediate parties at interest.
In defining the rights of one seeking a permit for an additional well this Court, and the Supreme Court, have announced several times: "A lessee is entitled only to an equal opportunity with the lessees of adjacent lands to recover his fair share of the oil in place beneath his tract; and when he is enabled to do so, the requirements of the law and the commission's rule to protect him against confiscation have been met." See majority opinion Railroad Commission v. Gulf Production Co., Tex. Civ. App. 115 S.W.2d 505, 507, and cases cited.
So, in absence of pleadings and proof, and in support of the validity of the permit, it will be presumed that appellants will each get from their respective leases the full equivalent of all recoverable oil that originally underlay them, even if the permit in suit is sustained. Certainly there is neither pleading nor proof to the contrary. If so, appellants' only complaint is that the well in suit prevents them from recovering more of somebody else's oil than they would otherwise get. We cannot justly test appellee Gulf Land Company's rights by one standard, and apply a different and more liberal rule in defining appellants' rights. This subject is discussed in Ortiz Oil Co. v. Deep Rock Oil Corp., Tex. Civ. App. 112 S.W.2d 210, at page 211, writ of error dismissed; and the majority holding in the instant case is in conflict with that decision.
The judgment of the trial court should have been sustained.