SKZ, Inc. v. Petty

SKZ, Inc. v. Petty
1989 OK 150
782 P.2d 939
60 OBJ 2902
Case Number: 68037, 68117, 68118
Decided: 11/14/1989
Supreme Court of Oklahoma

SKZ, INCORPORATED, APPELLANT,
v.
MARY JANE PETTY, RAY B. PETTY, D. VERNON CAMP, STEVEN R. RUSSELL, REDCO ENERGY, INC. SUNSHINE EXPLORATION AND THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA, APPELLEES. (THREE CASES).

Appeal from the Corporation Commission of Oklahoma.

¶0 Unit operator appeals from orders of the Corporation Commission allowing appellees, owners of leasehold interests, to participate in increased density wells drilled by appellant's predecessor, even though appellees, or their precedessors, had previously elected not to participate in the first test well in the unit. Principal issue on appeal is whether Corporation Commission has authority to force pool by the wellbore instead of force pooling by the drilling and spacing unit.

CORPORATION COMMISSION ORDER NOS. 306469, 307103 and 307104 REVERSED.

David E. Pepper, Mark A. Donaldson, Conner L. Helms, Linn & Helms, Oklahoma City, for appellant SKZ, Inc.

Guy E. Taylor, Ames, Ashbranner, Taylor, Lawrence, Laudick & Morgan, Oklahoma City, for appellee Betty Duncan Croy.

Robert J. Emery, William B. Rogers & Associates, Oklahoma City, for appellee Redco Energy, Inc., et al.

DOOLIN, Justice.

[782 P.2d 941]

¶1 The Corporation Commission ("Commission"), by order Nos. 191528 and 211490, created a 640 acre drilling and spacing unit naming thirteen common sources of supply, including the Marchand, underlying Section 13. T9N, R11W, Caddo County, Oklahoma. Thereafter, Towner Petroleum Company ("Towner"), predecessor in interest to SKZ, Incorporated ("SKZ") filed an application to pool the interests and adjudicate the rights and equities of the leasehold interest owners. The Commission issued Order No. 224432, which pooled the interests in the common sources of supply. However, because this order did not include all the necessary parties the Commission issued Order No. 231312 pooling the remaining interests.

¶2 Pursuant to these orders, the interest owners were given an option of either participating in the development of the unit, by sharing in the costs of drilling and operating the well, or not participating and accepting a bonus. Owners who chose not to participate were given three options. The first option was to receive a $2,000 per acre cash bonus plus an overriding royalty of 1/16 of 8/8. The second option for the owners was to receive a $1,600 per acre cash bonus plus an overriding royalty of 3/40 of 8/8. Finally, the owners had the option to receive an overriding royalty of 1/8 without a cash bonus.

¶3 The appellees elected not to participate in the proposed Stevens No. 13-1 well, but elected to receive a bonus in lieu of paying their share of drilling and completion costs. Thereafter, the Stevens No. 13-1 well was completed as a commercial producer in the Marchand common source of supply by Towner. Following the successful completion of the Stevens No. 13-1, Towner applied to the Commission to drill three increased density wells in the Marchand Formation. As a result, the Commission issued Order No. 237579 which allowed the drilling of the Stevens No. 13-2, 13-3 and 13-4 wells.

¶4 Appellees filed applications with the Commission to adjudicate the rights and equities of the leasehold interest owners in the increased density wells. The applications resulted in the issuing of Commission Order Nos. 306469, 307103 and 307104, which are the subject of this appeal.

¶5 The main issue presented in this appeal is whether the Commission has statutory authority to force pool by the wellbore instead of force pooling by the drilling and spacing unit. We must also interpret the language of the initial pooling orders in Section 13.

¶6 Appellees argue that because the original orders, Nos. 224432 and 231312, allegedly pooled the wellbore, any alteration would constitute a collateral attack on those orders and deprive appellees of procedural due process. Appellees further allege that such alteration would be an unconstitutional taking of private property for private use in violation of Art. II, § 7 and § 23 of the Oklahoma Constitution.

¶7 An appeal from an order of the Corporation Commission rests solely in the Oklahoma Supreme Court.

¶8 The decision of the Commission allowing appellees to participate in the increased density wells was erroneous. The Court of Appeals recently addressed the same issue in Amoco Production Co. v. Corporation Commission.

¶9 Appellees contend that the express language of Order Nos. 224432 and 231312 show the Commission's intent to pool only the wellbore, and thus any alteration of the meaning of these orders by this Court would constitute a collateral attack on those orders in violation of 52 O.S. 1981 § 111 . Specifically, both orders state the words "unit well". Appellees argue this language indicates the orders' wellbore scope. This argument must fail. In both Inexco and Ranola pooling orders in dispute referred to "the well" in singular form. In those cases, as here, it was argued that the language indicated wellbore pooling. In both cases the orders were held to pool the entire unit.

¶10 Order Nos. 224432 and 231312 required appellees, or their predecessors in interest, to participate in the costs of drilling and completing the Stevens No. 13-1 or to accept a bonus. Once the election period passed, the property rights vested.

II.

¶11 The Corporation Commission acted in its adjudicatory capacity when issuing Orders Nos. 306469, 307103 and 307104.

¶12 When free from such vitiating infirmity, a pooling order is res judicata, but terms of a prior pooling order may be modified by the Commission upon a showing of a change in or knowledge of conditions necessitating the repeal, amendment or modification of the order.

¶13 By issuing Order Nos. 306469, 307103 and 307104, the Commission, in effect, vacated Order Nos. 224432 and 231312 by repooling the unit.

¶14 Corporation Commission Order Nos. 306469, 307103 and 307104 are REVERSED.

¶15 HARGRAVE, C.J., OPALA, V.C.J., and HODGES, LAVENDER, ALMA, WILSON, KAUGER and SUMMERS, JJ., concur.

¶16 SIMMS, J., concurs by reason of stare decisis.

Footnotes:

1 Case Nos. 68,037, 68,117 and 68,118, companion cases by order of the Supreme Court.

2 Okla. Const. Art. IX, § 20. cl. 2.

3 Okla. Const. Art. IX, § 20, cl. 3. See also, Carter Oil Co. v. State, 205 Okl. 541, 240 P.2d 787 (1951); Anderson-Prichard Oil Corp. v. Corporation Comm'n., 205 Okl. 672, 241 P.2d 363 (1951), cert. denied, 342 U.S. 938, 72 S. Ct. 562, 96 L. Ed. 698; Atchison, Topeka & Santa Fe Ry. Co. v. State, 692 P.2d 554 (Okl. 1984); Ranola Oil Co. v. Corporation Comm'n., 752 P.2d 1116 (Okl. 1988).

4 Ranola, at 1118; Dablemont v. State, 543 P.2d 563 (Okl. 1975); Schwartz v. Diehl, 568 P.2d 280 (Okl. 1977).

5 751 P.2d 203 (Okl.Ct.App. 1986) (Adopted by the Supreme Court Feb. 9, 1988); See also, Inexco Oil Co. v. Corporation Commission, 767 P.2d 404 (Okl. 1988), cert. denied, §§§ U.S. §§§, 109 S. Ct. 1943, 104 L. Ed. 2d 414 (1989); Ranola Oil Co. v. Corporation Commission, 752 P.2d 1116 (Okl. 1988).

6 Amoco, at 206; Inexco, at 405.

7 Amoco, at 205.

8 52 O.S. 1981 § 87.1 provides: ". . . When two or more separately-owned tracts of land are embraced within an established spacing unit . . . the owners thereof may validly pool their interests and develop their lands as a unit. Where, however, such owners have not agreed to pool their interests and where one such separate owner has drilled or proposes to drill a well on said unit to the common source of supply, the Commission, to avoid the drilling of unnecessary wells, or to protect correlative rights, shall upon proper application therefor and a hearing thereon, require such owners to pool and develop their lands in the spacing unit as a unit. All orders requiring such pooling . . . shall be upon such terms and conditions as are just and reasonable and will afford to the owner of such tract in the unit the opportunity to recover or receive without unnecessary expense his just and fair share of the oil and gas." [emphasis added].

9 Amoco, at 206.

10 Amoco, at 208.

11 Inexco, at 405; Ranola, at 1119.

12 Ibid.

13 Inexco, at 405; Ranola, at 1119; Crest Resources v. Corporation Commission, 617 P.2d 215, 218 (Okl. 1980).

14 Inexco, at 405; Ranola, at 1119.

15 Ibid.

16 Inexco, at 405; Amoco, at 207; Harry R. Carlile Trust v. Cotton Petroleum, 732 P.2d 438, 442 (Okl. 1986).

17 Inexco, at 406; Munson v. State, ex rel Corporation Commission, 673 P.2d 839, 842 (Okl. 1983); Hunton Oil v. Atchison, T. & S.F. Ry. Co., 738 P.2d 191, 193 (Okl. 1987); Tenneco Oil Co. v. El Paso Natural Gas, 687 P.2d 1049, 1050 (Okl. 1984).

18 Inexco, at 406; Tenneco, at 1052.

19 Gulfstream Petroleum Corp. v. Layden, 632 P.2d 376, 379 (Okl. 1981).

20 Kaneb Production Co. v. GHK Exploration Co., 769 P.2d 1388, 1392 (Okl. 1989);

Mullins v. Ward, 712 P.2d 55, 59 n. 7 (Okl. 1985).

21 Inexco, at 406; Crest Resources, at 218; Buttram Energies v. Corporation Commission, 629 P.2d 1252, 1254 (Okl. 1981).

22 Inexco, 406; Nilsen v. Ports of Call Oil Co., 711 P.2d 98, 102 (Okl. 1985).

23 Inexco, at 406.

24 Inexco, at 406.