Brief on Behalf of Amicus Curiae — Railroad Commission of Texas v. Rowan & Nichols Oil Co.

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Text

VED |

- } Office - Supreme Court, U, S |

FILwL

" . -T GHABLESELAORE GROPLEY |

INTHE |

Supreme Court nf the United States

OCTOBER 7am, 1939

«a ie is

; a

No. 681

RAILROAD COMMISSION OF TEXAS, ETAT.

Petitioners,

V.+

ROWAN & NICHOLS ‘OIL COMPANY,

ua Respondent.

| 5 | , bi

“, "BRIEF OF AMICI CURIAE WITH PETITION

= Sa 7 ee 7

i | W. T. SAYE,

if a ee for Amici Curiae.

' | = iil MARSHALL - : 4 7 .

> Re oN Q°

3 Cosma of Petitioners to Fife Brief as Amici Curiae 1

IN D E x~. -

Page

Waiver of Objection by. Respondent to File

Brief as. Amici Curiae BOERS BS EEE are a ee 2

Pe’ ition he Leave to File Brief as Amici Curiae__3- 4

oe of Amici ie eee 6-23

_ Landowner’ > Ownership of Oil in Tenet: 5

: Validity of the-Commission’s Orders and _

Their Application to the Respondent__-__ 8

III. Czurts Cannot Perform the Admini- ©

' strative Duties of the acaiirond Com-

mission Le Cg eID de Ie PE ee ne RO -..

IV: The Marginal Well Law and jis Effect

. on Proration -.-.-.--------=-------- 20

~~ Appendix “A” ee ae

of ORR een ere

TABLE OF CASES CITED.

Brow nv. Humbie Oil & Refining Co., 83 S. Ww.

ae irsiecciaa aca ecd eta aianiaia Ms winiciiatemss 7, 8.

~ Cavanaugh v. Looney, 248 U.S. 453, 39 Ss. Ct. 142, |

nr apie 13

Gulf Land Co. v. Atlantic Refining Co., 131.

S. W. (2) ___ Eee aie Neeeimnee 8

‘Heald v. District of Columbia, '259- U. $.114, - ke

eee SE | Ree. Ty ea ec Sere 13

Mass. State Grange v. mak 272-8. 225, 47 |

S. Ct. 1895 71 L. Ed. REAR RTE RTT 13

New State Ice Co, v. Lichmann, 285 U. 8. 262,

52 S. -Ct. i ee 12

Premier-Pabst Sales Co.-v. Grosscup, et al, 298

CD, aie ee Se ti Sa RG areca alice tincndwendiuces 13

Railroad Commission v. Rowdn \& Nichols Oil Co.,

fe Me , SRR eR et eee eed 14 -

~ Rowan & Nichols Oil Co. ve Raily oad Commission,

28 Fed. Supp:-1381. .- 2... --=<s-=scsseeze 14:

TEXT BOQKS AND STATUTES.

Page .

Ameri ican Institute ‘of Mining and. itithiveieg

Engineers, Vol. 123, Year 1937, pages 456-

459, also Vol. 127, Year 1938, pages 544-549__ 9

“Analytical Principles of the Spacing of Oil and

| Gas Wells” by Rabert W. Phelps, AIME |

Volume titled ‘‘Petroleum: Development and

Technology,” 1928-29, p. 90-103._.._______- 9

Petroleum. Production by Wilbur. F..Cloud (1937

a IE Ws Boon cn duenus enna ciwees an ae

Petroleum Production Rostsseshan’ by ian i

: Charles Uren, 1934, pages 83, 92___:_______ 10

The Science ef Petroleum (1938 Ed:) Chapter . -

styled “Fundamental Principles Governing

Drainage of Petroleum From Its Reservoir’ _-1T1

Article 6949b, Texas Revised Civil Statutes... -20 © |

9 .

We, the undersigned, attorneys for the respond-

ent, Rowan & Nichols Oil Company, have no objection —-

. ,W. T. Saye, in Cause No. 681, Railiioad Commission

of Texas, et al, petitioners v. Rowan & Nichois Oil .

- Company; respondent. - # tne

: “e - RIce.M. TILLEY

DAN MooDy

Dated ne siete Texas

on this the 15th day of

April, 1940...

We, Gerald C. Mann, Attorney General,.W. F.

Moore, First Assistant Attorney General, and James

P. Hart, Assistant Attorney General, hereby consent

to the filing by J. N, Saye and: W. T. Saye of brief

amici curiae in Cause No. 681, Railroad Commission °.

of Texas, et al, petitioners v. Rowan & Nichols "

Company, respondent. :

GERALD C. MANN,

Attorney General pf Texas

W. F. Moore,

First Assistant ‘Attorney General

| JAMES P. Hart,

i Assistant Attorney General.

Dated at Austin, Texas

_ on this the 15th day of —

April, 10-40.

S$.

IN THE _ . beh

setae - Suipreme Court-of the United States

| OCTOBER TERM, 1989-5

_ No. 681

RAILROAD COMMISSION OF TEXAS, ET AL,

pth neta Petitioners,

| ag oo

ROWAN & NICHOLS OIL COMPANY;

Respondent. -

~ Petition for Leave to File

| Brief Amici Guriae.

~The undersigned respectfully petition this Honor-

able Court for leave to file a brief amici curiae in.the

above entitled suit. Your petitioners respectfully

show to the.court that they as attorneys represent in

» excess of fifty persons and corporations owning and

operating more than 300 wells loeated in the East -.

:s 7 field, all of whom are affected by the orders of

4 | eet

_ the Railroad Commission attacked in this action. All

of these individuals and corporations have pending be-

fore the Railroad Commission of Texas a petition for’

an adjustment of the allowables fixed for their. wells.

The commission has refused to pasg.on the petiti

stating that no change will be made mits present

' der-until the instant case has been’ decided. This

clearly indicates, thatthe-commission contemplates

obtaining valuable information from this court’s opin-

ion on which ‘to base its next proration order.

It follows that each of the petitioners is vitally

interested in a decision of the ‘questions presented in

this suit.

Consent to file 4 this. brief has been given by coun-

sel for both the-petitioners and the Peer in the

above entitled cause. —

Washington, D.. C., ‘at 29, 1940.

Respecttelly submitted,

~ J. N. SAYE, Q

W. T. SAYE. |

5 2

IN THE \

- Supreme Court of the United States ,

OCTOBER TERM, 1939

No. 681 .

RAILROAD COMMISSION OF TEXAS, ET AL,

Petitioners,

V. } ‘

ROWAN &N ICHOLS OIL COMPANY, .

Respondent.

Brief of Amici Curiae 7

hae I. :

‘-LANDOWNER’S OWNERSHIP OF OIL IN TEXAS.

In-Texas a landowner not only owns the oil be-

‘neath. his land but also, by virtue of the “capture

“rule,” he becomes the owner of all oil brought to the —

surface through his wells. Both rules are subject to -

such modifications as may be necessary to reasonably

- a 6

enforce the conservation. laws. The rule is stated by

a recent decision of the Supreme Court of Texas as

_ follows: ’ . o Z

“The common law. recognizes no well

spacing regulations. At common law. the —

landowner can drill an unlimited number of °

wells for oil and-gas-upon his land. Mills &

Willingham, Oil & Gas. (1926) ‘ 270; Spm-

mers, Oil & Gas (1927) 73-76. The adjoin- a

ing landowner cannet complain if wells are

drilled near his boundary line. Under this —

rule the only. way the landowner can protect —

himself is to drill offset wells.. Prairie Oil

. & Gas Co. v. State, 231 S. W. 1088 (Tex. -

Con. App. 1921); Hunt v. State, 48 S. W.

(2d) 466 (Tex. Civ. App. 1932); Kelley v.

Ohio Oil Co., 57 Ohio St. 317, 49 N. E. 399,

39 L. R.A. 765, 63 Am. St. Rep. 721 (1897) ;

Barnard v. Monofgahela Natural Gas Co.,,

216 Pa. 362, 65 A. 801 (1907).. However,

this rule. has. been modified in this state.

Title 102, Vernon’s Annotated Texas Civil

Statutes, and a iacaueaiad articles 6014,

6029, 6046.

“The rule in Texas, recognizes the own-

ership of-oil and gas in place, and gives to

the less¢e a determinable fee therein. Lemar

v. Garner, 121 Tex. 502, 50S. W. (2d) 769;.

Humphreys- Mexia Co.-v. Gammon, 113 Tex.

- 247, 254 S. W. 296,29 A. L. R. 607; Wag-.

. goner Estate v. Sigler Oil Co., 118 Tex. 509, 7

- 19 S. W. (2d) 27; Texas Co. v. Daugherty,

107 Tex. 226, 176 S. W. 717, L. *R. A. a Lid

989. .

“Owing to the eer vee characteristics P

- of oil and. gas, the foregoing aa of owner-

ship of oil and gas in place should be consid-

Cars

ened in connection with the law of capture.

This rule gives the right to produce al]. of the’

oil and gas that will flow out of the well on |

‘one’s land; and this is a property right. And. . °

it is limited only by the physical possibility

of ‘the adjoining landowner diminishing the -

» oil and gas under one’s land by the exercise

of the same right of capture. ‘The following -

decisions discuss thé law of capture as ap-

a! in this state: Stephens County v. Mid-

‘ansas Oil & Gas Co., 113 Tex. 160, 254 S.

W. 290, 29°A. L. R. 566; H. & T. C. y. Co. °

v. East, 98 Tex. 146, 81 S.-W. 279, 66 3 R.

' A. 738, 107 Am. St. Rep. 620, 4 Ans. Cas.

827; Prairie Oil & Gas Co. “ve State- ‘(Tex.

Comm. App:) 231 S. W. 1088, 1089. Both

rules are subject to regulation under the

_ police power of a state.” Brown v. Farina

Oil & Refining Co., 83 S. W. (2), 9 ape

940. (Our italics) .

It will be observed from the ae "eootido

the court first.states that the rule in Texas recognizes

the ownership: of oil and gas in place.and gives to the

lessee ® determinable fee therein. In the next para-

- graph it states that the rule of ownership of oil and

gas in place should be considered in connection with -

the law of. capture, and that this rule gives the right.

to produce all of the oil and gas that wml flow out of

the wells on one’s land; holds-that the rule of capture

is a property right, and that it is limited only by the

physical possibility of the adjoining landowner. dimin-

ishing the oil and gas under one’s land by the exercise

. of the samé right of capture. The court further, holds

that both ‘rules are’subject to modification under the

‘police power of the state.

This is the leading decision by the Supreme Court |

of Texas bearing on property. rights of a landowner

in oil and gas since the conservation statute ‘Was en-

acted, e oF

| Il. |

VALIDITY OF THE COMMISSION’S ORDERS AND

THEIR APPLICATION TO THE RESPONDENT.

. Each landowner is entitled to a fair chance to

~ recover the oil. and gas in place beneath his land. -

Gulf Land Co. v. Atlantic Refining Co: (Tex-S. Ct.)

131 S. W. (2) 73; Brown v. Humble Oil & Refining —

Ca., supra. This does not change the common law

rule because prior to proration each man was entitled —

_ to protect his property against. drainage by drilling

. offset “wells. This same protection is row accorded.

him bythe spacing rule of the commission, which is

known as Rule 37. (Tr. 21- 23)

The lower courts seem to have cial that the

rule of capture’ has been abolished. Whether it has

or not has a material bearing on the formuia required o

for a valid proration order.. To illustrate, in many

eases the Railroad Commission might find that. exist-

*ing inequalities cowld be corrected. by granting: the

complaining party hermit to drill another well rath-

er than follow the tedious and at least uncertain me-

thod of determining the amount of oil in place under —

each lease. We do not believe it can be disputed that

the commission- would havé full authority to do this, °

because’ it would eliminate the discrimination and at

the same time prevent waste. It.is a’ scientifically -

established ‘fact that the closer wells are spaced, the

greater wilk be the ultimate recovery of oil fro om’ any y

sand producing field.

| es |

* Aineriban Institute of Mining and Metatiinglegt

Engineers, Volume 123; Year 1937, pages 456-459, al-

so Volume 127, Year 1938, ‘pages 544-549, “Anna-

lytical Principles of the Spacing of Oil and Gas Wells” . e

by Robert W. Phelps, petroleum engineer. for the

_ -Union Oil Co. of California, found in‘AIME Volume

titled Petroleum Development and Technology, 19238-

big pages 90-103.: Petroleum Production by Wilbur

. Cloud, published by the ‘University of Oklahoma

. a Norman, ‘Oklahoma, 1937 edition, page 58. We

quote from Mr. Clouds follows: AG

”

“The conventional pr actice used i in most.

4 fields whereby oil wells are located 660 feet

apart or on the center of 10 acre locations

regardless of existing pressures, structural

position, character of the oil, and sand condi-

tions, is probably the most common economic

engineering: absurdity employed in the oil in-

- dustry at the present time.: Likewise, the

close spacing used. in the ‘town lot’ dr illing --

of parts of such fields as Oklahoma City,

‘Long Beach, Huntington Beach, and Santa

_ Fe Springs, ‘California, as well as in cértain’

’~galt dome. areas of Texas and Louisiana, is

equally absurd. Such closely spaced wells

usually will yield a high recovery per acre,

. but the excessive cost of completing and op-

erating so.many deep wells will prevent the

operators from ever recovering the money

invested i in such.a drilling pega.

Again on page 59 quote:

ile “In fields where the gas pressure is very

‘low. Sad production depends almost entirely

upon the force of hydrostatic pressure’ de-

veloped as a result of artesian conditions or

natural edge water. “encroachment, a stag-

\ Vgeten Cates Uren, professor. of petroleum engineer-.

gered, or trisngular arrangement of well

spacing’ should be used. In-s@ch a field the *

pressure of the water must ke high enough

‘to overcome capillary retention and pore

friction; and the reservoir should be uniform

m texture, as water coning and entrapment

of oil may result.. When oil is being produc-

ed under such conditions, the wells should be

spaced close together -across the face of the

water front afid farther apart,in the direc-

ticn of the ‘dip of the reservoir rock. 42

See also Petwiheu Productign Engineering by

ing, University of Califor nia, cuca i in 1934. Page |

83 quote: en

\ in wells -dri

“Mavimuin: ultimate recovery of petro-

leum from an oil field is secured’ by syste- °

-matic’ and timely drilling of wells, thus

deriving the greatest benefit from the rela- _

tively high initial, gas Bd dial Natural gas, :

‘ dissolved and oeclude

, sure, is the principal motivating agent caus-

ing the oil to: flow from the reservoir rock —

_ into the wells during the earl¥ life 8£ most

in the oil under pres-

oil fields. Productivity of the wells dimin-

ishes. as the gas pressure’ declines. Maxi-

mum field | seypro ‘are experienced - only

led during the early life of a.

eee a of gas through these early,

wells leads to rapid decline*@f field pressure

So eae later drilled wells have smaller initial

and. ultimate productions. The oil that these

later drilled wells fail to’ produce,,in com-

- parison’ with the recoveries ‘effected by the

earlier wells, is largely left in the sands, ~

drained of its gas and unregover&ble by or di-

nary flowing and es methods, If all

, ou

. _ the wells ‘could be completed in time to re-

ceive the benefit of the higher field pres-

surgs, greater sengreram would unquestion-

ably result.”

We quote from page. 92 of me same work:

_ “Many wells in the<trowded - town-lot

‘sections .of the Santa Fe Springs and Long

Beach fields of California, for example, aré

so. closely spaced that they: will never pay

intensive : a lopment, but the cost of drill-

ing and operating so many wells will be more

-than the value ‘of fhe oil produced. Doubt-

less; in many closefy. drilled areas, there will -

be some profit, though it will be less than it:

might have been with wider spacing. On

the other hand, many of the more conserva-

tively developed fields have been drilled with ©

wells that are too widely spaced for maxi-.

and western Amcrican fields have been drill-

ed with an allowance of 10 acres per well,

‘and yet computations indicate that in some

cases profits could have been doubled or

tripled : = adopting closer spacings: Present:

information does not\.admit ‘of anything

more than speculation’on what the aggregate-

loss has been from the national siandpoint,

but rpugh .computations based on data from

sii suggest that it is-probably greater :

than the profit that has.béen realized on all |

of the oil thus fdr produced. sy

| The very latest ‘work’ beari ing on this subject is

The Science of Petroleum, published by the Oxford:

University- -Press, 1938 Edition. From chapter styled

- . out. A high per acre yield will result from = —__

‘mum profit.. Great areas in Mid-Continent ~<—= r

- a few fi@lds on which results have been as- Ragin

“Fundamental Principles Governing Drainage of Pe-

troleum From Its Reservoir,” we quote: |

“Kapulsion of Petroleum from the Re-

servoir Rock by Expanding Natural Gas. .

When«a reservoir rock containing petroleum -

charged: with- dissolved natural gas under

high pressure is penetrated by a well, the

equilibrium of foyces that previously existed ©

is disturbed. If the well is not shut in and

fw of fluids to the surface is permitted, the

- pressure within the reservoir Xxock in the im-

"mediate vicinity of,the well is Yeduced. Re-

- duction in’ pressure’ permits felease of a .

part of the dissolved gas from the gas-satu-

rated oil, and the gas, thus released, assumes

the form. of minute bubbles distiibuted

through the Viscous oil.mass. The jfressure —

reduction is greatest at and near the walls of

the well—.” . - .

“The Ultimate Recovery of Petroleum

from its Reservoir Sands: Within prac-

tical Jimits, the ultimate production will in-

crease as’ the number, of wells increases.

Maintaining a certain: spacing of wells, the

recovery will be increased by drilling them

of larger diameter. The rate of develop-

‘ment will-have an important influence on

gross recovery.” |

v It may be that counsel will contend that these

publications cannot be considered by this court’ be-

cause they were not introduced in evidence in the trial |

court. Hagwever, this contention is entirely refuted

by Judge Brandeis in his dissenting opinion in New

State Ice Co. v. Liebmann, 285 U. S. 262; 52.S..Ct. .-

371. See footnotes, pagés-282, 283 and 284 of 285 U.

S. and’ pages 376 and 377 of 52 S. Ct. ne pike

‘

_ The respondent has, therefore, taken advantage

of the spacing rules of the commission and drilled a

reasonable number of wells on its lease. During that

— period of time it has admittedly recovered 358,000.

barrels of oil without depleting the recoverable oil un-

der its lease in any appreciable amount... (Tr. 400,

see Exhibit 1, offered Tr. 1 to 20, copied Tr. 674.

“ee also Tr. 311, 312, 621, 397, 399, 456.) -

In view of the above facts, it is wholly unneces-

sary for the court to pass on the validity. of the order

as applied to the properties of the respondent, because

when respondent proved by its own witnesses that it

had not been injured through the operation of the

statute, it admitted itself out of court. It is a

well established principle that a person attacking a

State ‘statute, or an order made pursuant to such”

statute, must, show that the alleged unconstitutional

features injure him. Mass. State Grange v. Benton,

272 U. S. 225, 47 S. Ct. 189, 71 L. Ed. 387; Cava-

naugh v. Looney, 248 U. S. 453, 39 S. Ct. 142, 63 L.

Ed. 354; Heald v. District of Columhia, 259 U. S. 114,

42 S. Ct. 434; Premier-Pabst Sales Co. v. Grosscup, et

al, 298 U. S. 226, 56 S. Ct. 754. . .

The opinion in the case last cited was written by

Mr. Justice Brendeis, and in his usual admirable style,

he stated the law‘as follows:

- “We have no occasion to consider the

constitutional question, because it appears

that the plaintiff is without standing to pre-

sent it. One who would strike down a state

statute as obnoxious to the federal constitu-

tion must show that the alleged unconstitu-

tional feature injures him.”

e \

ne III.

COURTS CANNOT PERFORM THE ADMINISTRATIVE

DUTIES OF THE RAILROAD COMMISSION.

‘The Jearned District Judgé stated: “It is,. of

course, not the duty of: the court to write a better ord-

ar, ner does the obligation rest upon complainant to ;

suggest one.’ ’ Notwithstanding this statement, the re-

cord reflects that the district court did adopt the exact

formula submitted: by respondent, and in effect ‘held

that any order that did not conform to that formula

would: be void- as to the respondent. The Circuit

Court of Appeals stated: .

“We agree with the district court that

- .in entering an order prorating the amount

of oil to be produced from each well:the com- .

mission should take intg consideration the a-

.mount of oil in place under the lease as well |

as other relevant factors and should so ad-

minister the order as to allow each lease own-

er to produce’ his fair share of the oil from

the reservoir. . In order to remove any doubt .

as to the temporary character of the ratio

', fixed by the district court, the judgment will

be amended to read ‘without prejudice to

the right of the commission to enter.a fea-

sonable proration order and to fairly enforce

~~ ) iH

The opinion . the alsévict court (Tr. 64) is

ported in 28 ed. Supp. 131, and that of the

Court of a (Tr. 1005) is spore? i

(2) 70.

It w ill thus be seen that each of the lower pane

recognized that its jurisdiction was restricted to a de-

—". 4

termination of the validity of the ordér as applied to

the respondent and, if found to be invalid, enjoin its.

operation’ as against the respondent. However, we-—.

think each of the courts erred in holding that. the

commission, in entering an order, is required to take .

into considération the amount of oil in place under the

‘ lease, the per acre’foot of sand, the sand thickness,

etc. We agree that it is proper and helpful to have

the court point out the particular infirmities in the

order, but we do ‘not believe that it;is within its pro-

‘vince to direct. a_particular-for ‘mula and in effect tell

the commission that such formula miust be adopted.

This is because the commission is an administrative

agency of the state, charged with the duty of promul-

gating-and enforcing proper and legal rules and re-

gulations.. As to proration orders, the commission

holds state-wide meetings ‘practically every month. It

has an engineering department and various other em-

ployees.constantly employed in the various fields, con-

ducting investigations and gathering data and other .

information to be used in promulgating its arders,

rules and regulations, and therefore it should begiven |

liberal discretion in determining the method of prora-

tion that it will adopt, 7% sing whatever ‘ it

finds appropriate so long as the method adopted will.

—¥esult-in giving each owner a fair chance to recover

his proportionate part of the oil, provided always

that the order shall be written with an eye) to the pre-

vention of: waste. The paramount’ pury se of -the

conservation act is the prevention-of—waste ‘and con-

servation of the natural resources. In. accomplish-

ing this end, it-is, of course, the duty of the commis-_

sion to prevent, so far as i§ possible, the” impairment.

of any property rights.

We agree ‘with counsel for the the respondent-that it >

is probably not-necessary for the court to pass on the ~

~ question of whether or not an order based*on the ca- _

pacity of the wells to produce is involved in this case,

because we cannot sincerely argue that. the orders at-.

tacked in this action are based on the wells’ poten-

tials. It is true that the commission was attempting

to prorate on a potentiai basis, but the top allowable

for.the field is so low that it clashes with the minimum

flat per well allowable.

In his opinion, ~~ MeMillan, District Judge,

stated: -

“As said before, it is not the court’s

function to draw an order. However, the :

evidence is not:at all clear that this 522, 500 :

barrel top allowable is fixed solely for the

revention of waste. Respondent’s engineer

udnall frankly admitted that he was of the

opinion that a higher allowable could be fix-

ed without injury.. Their Chief Engineer,

Cottingham, ‘did not deny that such was the .

case. «It is manifest from all of the evidence

that the allowable has been fixed with an eye

to the market as well as with an eye to the

prevention of waste. Complainant does not °

attack the idea of a top allowable. That

however does not preclude the court from’

considering the matter in contemplating the

reasonableness of this entire plan of prora-

tion.” ,

Here te learned trial judge came dangerously

close to uncovering the “nigger” in the-wood pile, not-

withstanding the fact that neither party was com-

plaining about the top allowable. This demonstrates

the vice of the court.attempting to suggest a plan of

“.

at use

———— 17

ees a . : ; a

proration covering a field in which there are many

- hundreds of producers and operators, some similarly

situated, others differently situated, in a single action

whereby the rights of one party only are in issue.

Had.-the court not accepted the suggested ‘plan of-

fered. by the respondent, we would have. nothing to

say about the matter, ‘but since the court has very

strongly indicated to the commission that a method

of proration that will not currently allow each man to-

recover his percentage of the total reserves will not

stand the test, we feel that it is not out of place to in-

vite attention to the infirmities of such a plan. The>

vast majority of owners of properties. lying west of re-

” spondent’s lease do not have as much oil in place under

their lands as dges the respondent. A short distance

west of respondent’s pr operty the sand begins to be-

come thinner-and there is a continuous dip from there

on to the west side of the field. All of this acreage is

underlain with water. The water moves in from the

— west and. rises vertically as the fluid is taken from

the reservoir. The pressure is high on the west and

low on the east, and the admitted facts are that there

is a constant migration from west to east, as well as

‘ a constant vertical rise in the. water table in the west- . a

ern part of the field, whieh is underlain with water:

This being true, there cannot be any logic to the argu-

_ ment that properties situated in the fairway should

be currently permitted to produce. the same percent-

west. It is obvious at a glance that a structural cor-

rection must be made to offset the migration. If it is

not done, it is 4s plain as the‘noonday sun that the

west side’ wells will .be drowked with water and a

_ large proportion of the oil beneath the lands will have

moved on eastward long before the reeoverable oil

originally in place under said lands can be recovered...

It is obvious that if the respondent is permitted to cur-

rently recover his percentage of the recoverable re-

serves, and at the same time have those reserves con-

stantly replaced by oil from the west, in the end,. it

will recover far more oil than its percentage of the

orifinal recoverable reserves. Therefore, if for the .

‘ sake of argument, we admit that the lower court was »

correct in holding that if respondent had been permit-.

ted to currently produce its percentage of the total

reserves in the reservoir, it would to date have recov-

ered 200,000 barrels‘ additional oil, still. the court’s

holding is incorrect as a matter of law, because re-

spondent is not now ‘and never has been entitled to

produce currently the percentage of oil that the re-

coverable oil under its lease bears to the total reserves

of the field. It must be borne in mind that approxi-

mately one-half of the field lies west of respondent’s

lease and fie oil is constantly migrating from west to

east. Moreover, the, allowables are adjusted every

month, based all the factors taken into considera-_

tion in making the order. Therefore, under the for-

mula offered by ‘respondent, its recoverable reserves

would be estimated every month and’the order based

en the reserves existing at that time. If such an

order had been put into effect when the respondent’s

lease was first devefoped, it would have produced until

_ this time, according to the findings of fact. of the

trial court, 200,000 barrels more oil than it has re-

covered, or a total of 558,000 barrels, and, according

to the testimony, it would still have virtually the same

2reserves that it had to start with. Of course, this .

¢«

- 19

‘condition would: be brought about by virtue of the

orders of the commission not taking into consideration

the question of migration.

fe}

— ie submitted that the lower courts erred in at-

tempting to state the different factors necessary for a

valid ordér, because if the courts are without juris-

diction ‘to write an order, Lies lack jyrisdiction to dic-

tate ‘one.

We are eeititiid inelined to the view that if the

'* commission can write an order based on the capacity

_ of the wells to produce, it is required by law to do so,

becausé such’ an order does not interfere -with-the op-

eration of either the rule of absolute ownership of oil

in place or the rule of. capture. i. |

It.is elementary law that a police regulation must

be so applied as not to destroy cn tba with rules

of property if its objective can be btained without

doing so.

For instance, 7 the commission finds that it is

necessary to curtail the production of a pool 50%, if

each well in‘*the pool were curtailed 50°% of its capa-

+. city to produce, neither of the above mentioned prop-

erty rules would be destroyed. .

The common law rule would merely. ie modified

to the extent that the police regulation operated to

curtail the production, but each ow ner would receive —

the same treatment. )

It will be contended that this method is impract-

able. It is if the top allowable for the field is not.

_ raised, but we are inclined to ag.ee with the opinion .

of Judge’ McMillan that, even though the point were |

{

not in issue, it is not clear frdm the evidence that a

higher allowable could not be fixed without injury.

_ At any rate thisissue should not be foreclosed merely

. . because the comipiasion and one litigant agree on it, .

when. it affects hundreds of other owners and: Oper-

ators in the East Texas Field.

IV. ;

. THE MARGINAL WELL LAW AND ITS EFFECT :

" “ON PRORATION.

_ What is known as the marginal well law, Article

_6049b; Texas Revised Civil Statutes, and made Ap-

pendix “A” to this brief, insofar as it appliés to the

East Texas field, provides as follows:

"“(b) Any pumping oil’ well within

this State having a daily--capacity for pro- —

- duction of twenty (20) barrels or less, av-

eraged over the preceding thirty (30) ¢on-

secutive days, producing from a horizon -

deeper than two thousand (2, 000) feet and’

less in depth than four thousand (4, saa

feet.” *

It will be noted that the wells are e classified § 4C-

cording to depth. A pumping well 2,000 feet deep or

less, having a daily eapacity of 10 barrels or less, is a

marginal well. A pumping well deeper than 2,000

. feet and less than 4,000 feet, having a daily capacity.\

of 20 barrels or less, is classified as a marginal well. | \,

‘A pumping well producing from a horizon 4,000 feet -

deep and less than 6,000 feet deep, having a daily .

_ ¢apacity of 25 barrels, is a marginal well. A pump- —

' ing well 6,000 feet deep and less than 8,000 feet deep, —

- having a daily capacity of 30 barrels or less, is a mar-

plan of proration. The trouble is/th

‘that number of pumping wells will, under the formula, _

ginal well.. A pumping well producing from a hori-

zon deeper than 8,000 feet, having a daily ee of —

35 barrels or less, is a marginal well.

The marginal well law is not in issue in this case

except indirectly, but the rights of persons owning

wells that are better than’ marginal -wells, and which

the trial court found could be operated profitably on

from 5‘to 10 barrels per day, are vitally concerned,

and accepted by the lower courts, these wells, and

there is a great number of. them, will have their al-

lowables curtailed below the marginal well allowable.

It is no answer to this: proposition that there are only

471 marginal wells in the field’ As a matter of fact,

the marginal wells afe daily, increasing and they are

not located in any particular place except, of COUFSE, ay

as the word “marginal” indicates, as a general rule

they are edge wells. However, there are many wells

immediately adjacent to the marginal wells that are

pumping wells and are producing froma few barrels

more to several times. what the marginal wells will

produce... These wells in many instances are. direct

offsets to-marginal wells, and from past experience,

it will be quite a while before some of them will be- -

come marginal, wells. The : marginal wells are not:

so located as to set them out in a class to themselves,

® that their operation will not affect the other..wells ,

in the field. ‘The learned trial court held that 471

marginal wells were too insigntficant to ‘control the

= fh at several times

suggested, be vitally affected and they are better wells

than the- marginal wells, in that, on the east side the

marginal wells will continuously drain oil from the

better wells, and on the west side, and the north and

south ends, such wells will be so unreasonably cur-

tailed that some of them will be drowned by water .

within a short time, and others abandoned due to .

burdensome operating cost. This condition will ” :

aggravated as time passes. : |

In view of the status of oil and gas under the.

common law, the power of the legislature to enact

the marginal well law, we believe, is beyond doubt.

The fact-that marginal wells are,classified according

to depth clearly indicates the limit-to which it was. in-

tended that: the citizen should be deprived of his prop- Pi

erty, or its use, in the enforcement of ‘the conserva-

tion law, and that more drastic curtailment transcend-

- ed public necessity. ‘og

We submit that the commission is charged with

-the duty of maintaining a minimum allowable of 20

barrels per d.. id whatever formula is adopted must .

be in obedience to this mandate. : 2

We have just received bric f from. the’ ee

for the- respondent, Rowan & Nichols Oil Company,

and have only a few remarks to ‘make with reference

to it: On page 3 of the brief we find this statement:

“The findings: of fact were based on

testimony which is practically undisputed on

‘material points. Although Petitioners did -

not excépt to the findings of fact or request

that they’ be modified or that additional

findings be made, and, as Respondent under-

stands, do not here question the sufficiency

-of the evidence to support the findings, they

argue the suit from the téstimony and not

from the findings.”

23 | ey:

Rule 46 of the Federal Rules of Civil Procedure _

reads as follows: | } |

“Rule 46. | Exceptions Unnecessary.

Formal exceptions to rulings or orders of the

court are unnecessary; but for all purposes

for which an exception has nator been

time the ruling or order of the court is made >

- or sought, makes known to: the court the

action which he desires the§court to take

or his-objection to the action of the court and

his grounds therefor; and, if a party has no

‘opportunity to-object to a ruling or order at

the time it is, made, the absence of an objec-

tion does not thereafter prejudice him.” .

Respectfully submitted,

J. N. SAYE,

W. T. SAYE,

‘Attorneys for Amici Curiae.

‘

—

\ eeu

ee ea

on. . @

‘

_ APPENDIX “a” ae

age: 6049b. Minette wells ‘defined ; curtailing pro-

duction. 1-3:

See. 1. The term “Marginal Well” as used hate.

‘in. means a pumping oil well capes under nomnal

_ unrestricted operating conditions;*o producing such

daily quantities of oil as herein set out as would be

damaged, ‘or result in a loss of production ultimately

- recoverable, or cause the premature abandonment of -

same,\if its daily production were artificially curtail-

-ed.. The following described wells shall be deemed

Be, ‘Marginal Wells” i in. this. State:

(a) . Any pumping oil well within this State hae |

ing a daily capacity for production of ten (10) bar-

réls or less,-averaged over the preceding thirty (30)

consecutive days, praducing from a ) depth: of two

os thousand (2,000) feet or less:

(pb): Any pumping oil well within this State hav-

ing a-daiiy capacity for produetion of twenty (20)

. barrels:or less, averaged over che preceeding thirty

(30) <consecutive days, producing “om a horizon

deeper than two thousand *(2,000) feet and less in

. depth than four thousand (4,000) feet;

| — ing’ a daily capacity for production of twenty-five

(25 \ barrels or less, averaged ovér the preceding*thir-

ty -(30)" consecutive days, producing from a horizon

- deeper’ than. four thousand (4,000) feet and less ‘in

depth than six thousand (6,00Q) feet:

- ¢d) Any pumping oil well within this State

h: aving. ad = eucace:s for: production of thirty (30)

- deeper than six thousand (6,000)* feet and less in

* depth than eight thousand (8,000) feet: wet,

(e) Any pumping oil well within this State

having a daily-capacity for production of thirty-fiye |

_ (35) barrels or less, averaged over the ss le

thirty (30) consecutive days, producing from a hori-

zon deeper tHan eight thousand (8,000) feet. (As

“amended Acts 1933, 43rd Leg., p.. 215, ch. 97.) .

Sec. 2. To artificially curtail the production of

any “Marginal Well” below the marginal limit as set

out above prior to its ultimate plugging and abandon- ~

" ment is hereby declared to: be waste, and no rule or

‘order of the Railroad Commission of Texas, or other

’ constituted legal authority, shall be entered requiring

restriction of the production of, any ‘Marginal Well”

as herein defined.. (Acts 1931, 42nd Leg., p. 92, ch.

58.) ater ae

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