Court Opinion

ID: 9560071
Source: CourtListenerOpinion
Date Created: 2023-08-21 17:42:36.817964+00
Date Added: 2024-06-11T09:12:04.819667
License: Public Domain

MONTGOMERY, Justice (dissenting). There is much in the majority opinion with which I certainly agree. The lofty principles of due process — of a property owner’s entitlement to notice and an opportunity to be heard before she can be deprived of her property rights — are of course thoroughly ingrained in our state and federal constitutional jurisprudence. Likewise, the proposition that the royalty interest of a lessor under an oil and gas lease is a property right accorded constitutional protection under New Mexico law cannot be questioned. My quarrel with the majority opinion boils down to my flat disagreement with this simple statement: “The result of the hearing had the effect of reducing Uhden’s royalty interest from 6.25 percent to 3.125 percent of production.” The purpose of the hearing before the Commission was to determine the appropriate size of a proration unit in the Cedar Hills-Fruitland Basal Coal Gas Pool in northwestern New Mexico, in which Amoco operated several wells and in which Uh-den’s mineral interests were located. Under NMSA 1978, Section 70-2-17(B) (Repl. Pamp.1987), a “proration unit” is defined as “the area that can be efficiently and economically drained and developed by one well....” Determining the size of a proration unit has nothing to do with the ownership of property rights in the field in which the unit is located. The area which can be “efficiently and economically drained” by a single well is a function of the physical characteristics of the reservoir into which the well is to be drilled. Prescribing the size of a proration unit is a form of land-use regulation carried out by the Commission that depends entirely on the physical or geologic characteristics of the region and only affects the various property rights within the region in the same way as any other land-use regulation affects property owners within the area regulated. It is, if you will, a form of “rulemaking,” performed by the Commission in the discharge of its duties to prevent waste and protect correlative rights. See id.; §§ 70-2-11, 70-2-12(B)(10). When the Commission issued Order No. R-7588-A, Uhden’s royalty interest was unaffected. In order to affect her interest, a further step was necessary — namely, the pooling of her interest with a similar interest in the 320-acre tract surrounding the Cahn Well. That further step was taken; but it was Amoco, not the Commission, that took it. Amoco took it because Amoco was authorized by the lease with Uhden to take it. As the majority notes, the lease contained a voluntary pooling clause under which Amoco was authorized to pool Uh-den’s royalty interest with others to form production units of not more than 640 acres. It is true that the Commission’s order authorizing 320-acre spacing was a condition precedent to Amoco’s pooling of Uh-den’s interest in forming a 320-acre unit. However, the majority’s conclusion that “it was the spacing order, and not the pooling clause which harmed Uhden” does not follow. Probably every zoning and other land-use regulation is a condition precedent to action taken by one landowner consistent with the regulation that may in some way adversely affect another landowner subject to the same regulation. But that does not mean that the regulation causes the adverse effect; if the adversely affected landowner has authorized the landowner taking the action to do so, the mere fact that the action conforms with an applicable land-use regulation does not make the regulation the cause of the adversely affected owner’s harm. Had Uhden owned the royalty interest on an undivided one-half interest in the entire 320 acres in the new unit, the Commission’s spacing order would have had no effect on her cash flow. She would have continued to receive 6.25% of the proceeds from the single well allowed on the new unit. As it was, she had to share her 6.25% interest with the royalty owners of the other mineral interests pooled to form the new unit, but in return she received the right to receive a share of their royalty interest in the gas subject to their lease. I realize that the trade-off just mentioned is small consolation to Uhden and that in a very real sense, at least in terms of her current cash flow, her rights have been reduced significantly. However, that is the result not of the Commission’s spacing order, but of Amoco’s decision to exercise its right under the lease to effect a voluntary pooling. I believe that the notoriously slippery distinction between rule-making and adjudication is not particularly helpful in this case and that, if the Commission’s action had reduced Uhden’s interest, then the constitutional concerns in the majority opinion would be well taken — whether or not the action constituted “rulemaking” rather than “adjudication.” However, I do not think those concerns are implicated when the lessee exercises the right the lessor has given it in the lease to pool the leasehold and the associated royalty with other interests to form a new unit. The majority having concluded otherwise, I respectfully dissent.