EAGLE ENERGY PRODUCTION, L.L.C., CLAREMONT CORPORATION, and
POMONA PRODUCTION, L.L.C., Appellants,
v.
THE CORPORATION COMMISSION of
the STATE of OKLAHOMA, composed of The Honorable Patrice Douglas, Chairman, The
Honorable Bob Anthony, Vice Chairman, and The Honorable Dana L. Murphy,
Commissioner; TOWER ROYALTY COMPANY, L.L.C.; and THISTLE ROYALTY COMPANY,
L.L.C., Appellees.
Larry Joplin, Presiding Judge:
¶1 Appellants, Eagle Energy Production, L.L.C., Claremont Corporation and
Pomona Production, L.L.C., seek review of an order of the Oklahoma Corporation
Commission denying motions to reconsider the Commission's order of August 22,
2013, in which the Commission found Appellees, Tower Royalty Co., L.L.C. and
Thistle Royalty Co., L.L.C., are not bound by forced pooling order No. 552381,
issued on April 8, 2008. Appellants complain the Commission erred in its
determination that the 2008 Commission order did not effectively pool the rights
of Tower Royalty Co. or its successor, Thistle Royalty Co.
¶2 In November 2007, Orca Resources L.L.C., the pooling applicant, filed the
pooling application at issue in this cause, seeking to pool the drilling rights
of the owners in the 640-acre horizontal drilling and spacing unit formed for
the Misener-Hunton common source of supply, in Section 30, Township 15 North,
Range 4 East of I.M., Lincoln County, Oklahoma. Tower Royalty, Appellee, owned
mineral interests in the spacing unit for which Orca sought the pooling
order.
¶3 On March 27, 2007, prior to Orca filing the pooling application later that
year, Tower entered into a one-year oil and gas lease with Blackburn Properties,
Inc. The lease covered 155.69 mineral acres within the spacing unit at issue.
The lease provided that if drilling of a well, resulting in oil and gas
production in paying quantities, was commenced within the primary term of the
lease, the lease would be extended. There is no evidence in the record that oil
and gas production commenced within the term of the lease, which might have
extended the lease. Instead, the Tower-Blackburn lease expired on March 27,
2008, according to the terms of the lease itself.
¶4 As Orca proceeded with the pooling application, Blackburn was listed as
one of the respondents in the pooling proceeding, because Blackburn entered into
the mineral lease with Tower Royalty earlier that year. Terms of the
Tower-Blackburn lease, including the lease expiration date, were available to
Orca during the pooling process. Prior to the expiration of its lease, Blackburn
protested the pooling application as one of the respondents. Tower Royalty was
never served or listed as a respondent in the pooling proceedings, although
Appellants allege Tower had actual notice and was in collusion with Blackburn to
impede application of the pooling order. Blackburn made no election under the
pooling order. The pooling hearing was held on January 8, 2008 and the pooling
order (No. 552381) was issued by the Corporation Commission on April 8, 2008,
twelve days after the Tower-Blackburn lease expired. Special Energy, Inc.
was named operator under the 2008 pooling order. After Special Energy acquired
the working interests and drilling rights, Special Energy conveyed them to Eagle
Energy Production, L.L.C., Claremont Corporation and Pomona Production, L.L.C. A
bonus from the production was paid to Blackburn, Blackburn having been listed in
the pooling order and having made no election. Tower was not included in the
2008 order and was given no bonus payment under the terms of the pooling.
¶5 Appellants allege the lease between Tower and Blackburn was an attempt to
"game" the system and avoid the pooling order. The Commission's August 22, 2013
order makes reference to Appellants' allegations that Tower and Blackburn did
not engage in an arm's length transaction and did not establish a fair market
value for the lease. In fact, the Commission's 2008 order found the
Tower-Blackburn lease was not representative of fair market value. During the
most recent request for clarification proceedings, Appellants continued to
assert allegations of impropriety or "not acting in good faith" on the part of
Tower and Blackburn. Although Appellants assert the allegations of impropriety
are not new and were brought prior to the latest proceeding, the record does not
indicate the Commission ever made a finding of bad faith or improper conduct on
the part of Tower or Blackburn, and there are no stipulated facts asserting
Tower or Blackburn acted improperly.
¶6 After the pooling order was issued, Tower filed an affidavit of notice on
September 26, 2008 in Lincoln County, asserting the Tower-Blackburn lease
expired prior to the issuance of the pooling order and that Tower was not a
respondent in the pooling proceedings, and therefore not subject to the pooling
order. On July 22, 2010, Tower and Thistle1 filed a quiet title action in Lincoln
County against Appellants, asserting their working interests were not subject to
the 2008 pooling order. On September 27, 2010, Eagle Energy initiated the
current matter at the Corporation Commission, asking the Commission to determine
that the interests of Tower and Thistle have been and remain subject to the 2008
pooling order. The district court proceeding was thereafter stayed, pending a
final determination by the Commission. After both an ALJ Report and an Appellate
Referee report recommended finding that the drilling rights of Tower and Thistle
were subject to the 2008 pooling order, the Commission en banc heard oral
argument on June 30, 2013. The Commission issued its decision on August 22,
2013, finding the 2008 pooling order (No. 552381) did "not pool or otherwise
affect the rights, titles, interests or obligations of either Tower Royalty
Company, L.L.C. or Thistle Royalty Company, L.L.C. with respect to any mineral
interests they own" in the described section. Eagle, Claremont and Pomona filed
motions to reconsider. Those motions were denied, resulting in the appealed from
"Order Denying Motions to Reconsider."
¶7 Review of a challenge on appeal from an order of the Oklahoma Corporation
Commission is outlined in Article IX, § 20 of the Oklahoma Constitution.
The Supreme Court's review of appealable orders of the Corporation
Commission shall be judicial only, and in all appeals involving an asserted
violation of any right of the parties under the Constitution of the United
States or the Constitution of the State of Oklahoma, the Court shall
exercise its own independent judgment as to both the law and the facts. In
all other appeals from orders of the Corporation Commission the review by
the Supreme Court shall not extend further than to determine whether the
Commission has regularly pursued its authority, and whether the findings and
conclusions of the Commission are sustained by the law and substantial
evidence. Upon review, the Supreme Court shall enter judgment, either
affirming or reversing the order of the Commission appealed
from[.]
Henry v. Corporation Comm'n of the State of Oklahoma, 1990 OK 103, 825 P.2d 1262, 1266-67
(quoting Okla. Const. art. IX, § 20). Each Appellant, Eagle Energy,
Claremont and Pomona Production, filed separate appeals and briefing materials.
The three related cases of Appellants, Eagle Energy v. The Corporation
Commission, et al. (112,165), Claremont Corporation v. The Corporation
Commission, et al. (112,166), and Pomona Production, L.L.C. v. The Corporation
Commission, et al. (112,171), were consolidated on appeal by order of the
Oklahoma Supreme Court, September 23, 2013. Appellants in their appellate briefs
allege both similar propositions of error as well as separate and unique
propositions that were not shared amongst Appellants. Appellees, Tower and
Thistle, and the Corporation Commission responded separately to each set of the
Appellants' briefing materials. Because the propositions of error are not
identical across each set of filings, this single opinion will address each of
Appellants' set of alleged errors separately.
I. Eagle Energy
¶8 Eagle asserts three propositions of error in its claim that the
Commission's order violates its substantive due process rights. Eagle's first
and third propositions are related. First, Eagle asserts the Commission's
jurisdiction continued to be effective as to the mineral and drilling rights,
even after the Tower-Blackburn lease expired and those rights reverted back to
the owner/lessor, Tower. And second, Eagle claims the Commission's jurisdiction
attached to the drilling rights at issue prior to the expiration of the primary
term of Blackburn's lease, so that expiration of the lease prior to the
effective date of the Commission's order did not obviate the effectiveness of
the order as to Blackburn, Tower, or any other entity that may later come to the
oil and gas rights after Blackburn. Eagle argues this is so because the
Commission's jurisdiction attached to the drilling rights in rem without
regard for who owned the rights at the time the order was issued. Eagle also
claims the drilling rights were subject to the pooling order, despite the fact
the lease expired, Tower was not named as a respondent in the proceeding, and
Tower was not given notice as provided for by statute. 52 O.S. Supp. 2007 § 87.1(e).
¶9 The appealed from order states the primary question at issue in this case
is "whether a pooling order binds a lessor of an oil and gas lease which expires
prior to issuance of a pooling order." The appealed from order states the
effective date of the 2008 order was April 8, 2008 and the Tower-Blackburn lease
expired prior to the effective date of the 2008 order, on March 27, 2008. The
appealed from order goes on to note that neither Tower nor Thistle was a party
to the 2008 pooling, neither owned the right to drill or produce at the time the
pooling was initiated, Tower and Thistle were not named in the pooling
application, and no notice was given to Tower or Thistle. The resulting pooling
order (No. 552381) does not name either Tower or Thistle. And the Commission
concludes, "the Applicant (Orca) for the pooling order never perfected its right
to force pooling relief against Tower and Thistle or their interests."
¶10 Eagle's first and third propositions of error attempt to counter the
importance of the effective date of the order by arguing that notice to
Blackburn, Tower's lessee, and inclusion of Blackburn in the pooling process,
while Blackburn held the oil and gas lease, is sufficient to pool the interest
of any Blackburn successor, even though Blackburn no longer owned the mineral
interests when the order issued. In essence, Eagle argues because Blackburn
owned the mineral interests at some point in the pooling process, that is enough
to bind all who come to the mineral interests after Blackburn. To this end,
Eagle argues the Commission's jurisdiction attached to the drilling rights in
rem, prior to the issuance of the order. It should be noted that Commission
orders, as per the Commission's own rules, issue and become effective on the
date the order is signed by the Commissioners or by the Secretary upon approval
of the Commissioners. OAC 165:5-1-6(c).2 This means the effective date of the order was April
8, 2008, after Blackburn was no longer lessee of the mineral interests.
¶11 Eagle goes on to argue that the effective date of the order is
inconsequential, because forced pooling is an extended process and the pooling
order merely represents the culmination or establishment of a plan that was
developed during the pooling proceeding, citing Crest Res. and Exploration
Corp. v. Corporation Comm'n of the State of Oklahoma, 1980 OK 133, 617 P.2d 215. However, Crest
does not support Eagle's position, because it does not obviate the significance
of the effective date of the order. It is clear from cases such as
Kuykendall and Roberts v. Funk Exploration that the order itself
and the effective date thereof are relevant and vital parts of the pooling
process. And the estate created by the Tower-Blackburn lease, and Blackburn's
interests which Orca was attempting to force pool, ceased prior to the effective
date of the Commission's order. Ellison v. Skelly Oil Co., 1951 OK 122, 244 P.2d 832, 836.
¶12 Eagle also cites Harding & Shelton, Inc. v. Sundown Energy,
Inc., 2006 OK CIV APP 12, 130 P.3d 776, in support of
propositions one and three, arguing that Harding & Shelton "instructs
that once the Commission's jurisdiction and authority attach to drilling rights
held by a lessee in a pooling proceeding, the expiration of the attendant oil
and gas lease does not remove those drilling rights from the Commission's
jurisdiction and authority." (Emphasis in party's original brief in chief.) In
Harding & Shelton, successor lessees of a previously pooled unit
sought to re-pool the formations covered in a 1985 pooling order and to pool
previously unpooled formations underlying the same unit, to which the appellate
court found:
The prior pooling order constitutes a final determination of the rights
and obligations of any present or future holders of a mineral interest in
the affected common source(s) of supply, because to hold otherwise would
cast the established rights and obligations of any holder of a mineral
interest in the previously pooled common source(s) into chaos every time
there was a change in ownership of mineral or leasehold rights in any pooled
formation. Applicants must be held to have obtained their lease(s) subject
to the terms of the prior pooling order.
Harding & Shelton, 2006 OK CIV APP 12, ¶ 13, 130 P.3d
at 779.
¶13 Significantly for its application to this case, Harding &
Shelton also explains that "absent proof of such a change of condition or
knowledge of conditions, orders of the Corporation Commission affecting the
development of common sources of supply constitute a final adjudication of the
rights and obligations of the common source mineral interest holders, and,
once rights become fixed under such orders, those orders are not subject
to a later collateral attack. 52 O.S.
§ 111; Eason Oil Co. [v. Howard Eng'g, Inc.], 1990 OK 101, ¶ 8, 801 P.2d at
713-714." Id. at 778-79 (emphasis added). It is the "fixing" of Tower's
rights under the 2008 order that did not occur in this case, because the pooling
order, which was intended to be "a final determination of the rights and
obligations of" Blackburn, did not effectively contain Blackburn because it was
not a present holder of the mineral interest when the order issued; and the
lease expiration meant the mineral estate reverted back to the lessor, so that
the mineral estate the pooling applicant tried to force pool no longer existed
when the order was entered. Ellison v. Skelly, 244 P.2d at 836; Hinds
v. Phillips Petroleum Co., 1979
OK 22, 591 P.2d 697, 699 (a
lessee cannot burden the owner's estate beyond the terms of the lease grant).
The successor lessees seeking to redo the pooling scheme in Harding &
Shelton were successors to mineral interest owners and lessees whom the
court determined were pooled, or whose rights became "fixed," in the earlier
order; this is not the case with respect to Blackburn and Tower.
¶14 Eagle also cites Chancellor v. Tenneco Oil Co., 1982 OK 122, 653 P.2d 204, overruled on other
grounds by Tenneco Oil Co. v. El Paso Natural Gas Co., 1984 OK 52, 687 P.2d 1049, 1056 n. 23, arguing
Chancellor demonstrates that the Commission's jurisdiction attached to
and operated on the drilling rights at the outset of the pooling process. This,
Eagle claims, is evidenced by the Chancellor court finding that the
drilling rights changed ownership by means of a lease entered into after the
pooling application was filed, and the pooling order remained effective against
the lessee. In Chancellor, the lessee acquired a lease from the owner
after pooling proceedings had begun, after notice of the proceedings had been
filed before the Corporation Commission, and after notice had been sent to the
owner from which the lessee acquired his lease. Chancellor is not
instructive under the current set of facts. In this case, the lease in question
was entered into prior to the filing of the pooling application; the
owner/lessor was not provided notice either before or during the pooling
proceeding; Blackburn's lease estate which the pooling applicant was attempting
to force pool no longer existed when the pooling order was issued.
¶15 Eagle's reliance on Harding & Shelton and Chancellor
reveal a fundamental mistake in Eagle's argument, in that Eagle fails to make a
distinction between the following: a) the conveyance of a leasehold estate from
owner (lessor) of the estate to a lessee, as occurred in Chancellor, b)
the transfer or conveyance that occurs between a lessee and the lessee's
successor or assignee to the lease, as occurred in Harding & Shelton,
and c) the cessation or termination of a lease that occurs between the owner and
the lessee when the lease expires and ceases to exist, as occurred in this case.
The estate created by the lease between Tower and Blackburn ceased to exist by
its own terms on March 27, 2008 and full ownership of the estate was restored to
Tower. Ellison v. Skelly, 244 P.2d at 836. The pooling applicant's
attempt to burden the owner's (Tower) estate beyond the terms of the lease grant
is misplaced. Hinds, 591 P.2d at 699 (a lessee cannot burden the owner's
estate beyond the terms of the lease grant). When the lease estate ceased prior
to the Commission's order, the pooling applicant could not bootstrap its pooling
efforts against Blackburn and impose those efforts directly onto Tower.
¶16 Eagle's remaining proposition of error claims the pooling applicant's
failure to name Tower as a respondent in the 2008 pooling process, failure to
give Tower notice of the pooling application and proceedings, and failure to
secure Tower's inclusion in the 2008 pooling order itself is not fatal to its
position in this case. Eagle claims the notice to Blackburn was effective
against Tower, and Tower knew of the pooling process anyway, even alleging Tower
acted through or in conjunction with Blackburn during the pooling
proceeding.
¶17 Title 52 O.S. Supp.2007 §
87.1(e) provides as follows with respect to notice to be given mineral
interest owners in the course of a forced pooling proceeding:
The applicant shall give all the owners whose addresses are known or could
be known through the exercise of due diligence at least fifteen (15) days'
notice by mail, return receipt requested. The applicant shall also give notice
by one publication, at least fifteen (15) days prior to the hearing, in some
newspaper of general circulation published in Oklahoma County, and by one
publication, at least fifteen (15) days prior to the date of the hearing, in
some newspaper published in the county, or in each county, if there be more than
one, in which the lands embraced within the spacing unit are situated. The
applicant shall file proof of publication and an affidavit of mailing with the
Commission prior to the hearing. All orders requiring such pooling shall be
made after notice and hearing, and 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.
52 O.S. Supp.2007 § 87.1(e)
(emphasis added).
¶18 Section 87.1(e) makes multiple references to notice that is required to
be given by a pooling applicant in order to obtain a pooling order upon owners'
mineral interests in a designated pooling area: 1) "shall give all the
owners whose addresses are known or could be known through the exercise of due
diligence at least fifteen (15) days' notice by mail," 2) "[t]he applicant
shall file proof of publication and an affidavit of mailing with the
Commission prior to the hearing[,]" 3) "All orders requiring such pooling
shall be made after notice and hearing[.]"
¶19 "The use of 'shall' by the Legislature is normally considered as a
legislative mandate equivalent to the term 'must', requiring interpretation as a
command." Minie v. Hudson, 1997 OK 26, 934 P.2d 1082, 1086. In fact, the
Oklahoma Supreme Court held that a forced pooling order of the Corporation
Commission did not successfully pool the mineral interests of certain lessors
and their heirs who had not been given proper notice. James Energy Co. v. HCG
Energy Corp., 1992 OK 117, 847 P.2d 333, 339-40 (mineral
interest owners who were served only by publication were deemed not properly
served and their interests not force pooled, because pooling applicant had the
ability to determine the addresses of the mineral interest owners and did not
give the required personal notice). James Energy is consistent with a
legislative construction of the word "shall" as a command, demanding mandatory
or imperative compliance. Furthermore, when the Corporation Commission acts in
an adjudicative capacity, the agency is subject to due process requirements "not
dissimilar" to those that apply to judicial bodies, including notice
requirements. Mullins v. Ward, 1985 OK 109, 712 P.2d 55, 60.
¶20 Because the lease estate ceased to exist when the lease expired, it was
unlike a conveyance where the estate continued and notice might be imputed to
the party receiving the lease conveyance, as occurred in Chancellor, 653
P.2d at 1056. Cessation of the lease and the termination of the lessee's estate
when the lease expires does not burden the owner's (lessor) estate in the same
way, the lessee cannot burden the owner's estate beyond the terms of the grant.
Ellison v. Skelly, 244 P.2d at 499; Hinds v. Phillips Petroleum,
591 P.2d at 699. For this reason, upon expiration of the Tower-Blackburn lease
prior to the issuance of the pooling order, clean up pooling should have been
implemented with respect to Tower, so that the "present owner" of the mineral
interest (Tower) was included in the pooling order. The Commission found the
lessor does not "step into the shoes of the lessee." We agree.
II. Claremont Corporation
¶21 Appellant/Claremont's first proposition of error alleges Harding &
Shelton, Inc. v. Sundown Energy, Inc., 2006 OK CIV APP 12, 130 P.3d 776 controls in this case
and supports Appellant's position that the Corporation Commission's jurisdiction
attached to the Blackburn leased mineral rights in rem, so that the
Blackburn mineral rights reverted to Tower subject to the terms of the pooling
order. Appellant's second proposition of error asserts the Commission's
determination that the 2008 order did not pool the mineral interests of Tower,
and by succession Thistle, is an impermissible abdication of the Commission's
jurisdiction and authority to force pool. Appellant's third proposition alleges
the Commission's decision offends equity. Fourth, Appellant argues the decision
diminishes drilling funds for the entire Oklahoma oil and gas industry. Finally,
Appellant asserts the Commission erred in its determination that terms within
the lease controlled, though the pooling order specifically prohibited inclusion
and adoption of such terms.
¶22 With respect to Claremont's first proposition of error, wherein Claremont
argues Harding & Shelton controls and applies in this case, we
examined this issue above in the course of addressing Eagle Energy's first
proposition of error. Similarly, we find, when the lease estate ceased prior to
the Commission's order, the pooling applicant could not bootstrap its pooling
efforts against Blackburn and impose those efforts directly onto Tower.
¶23 Appellant's second proposition of error alleges the Corporation
Commission abdicated its jurisdiction and authority, to the detriment of forced
pooling across Oklahoma. Appellant argues the Commission maintains ongoing
authority from the outset of the pooling proceeding, and the Commission's
decision in this case fails to acknowledge or take advantage of that continuing
authority. Nilsen v. Ports of Call Oil Co., 1985 OK 104, 711 P.2d 98, 103. Appellant also
argues the state's police power attached to Blackburn's drilling rights at the
outset of the pooling proceedings, so that any contract between lessor and
lessee does not control the pooling, if the Commission has approved an order for
the spacing unit.
¶24 Appellant's argument here is misplaced. There is no indication in the
record that the Corporation Commission impermissibly gave up jurisdictional
authority at the point at which the Tower-Blackburn lease expired. The record
indicates the pooling applicant may have had opportunities to obtain an order
that included Tower, including requesting an extension to conduct clean-up
pooling, such clean-up may have then allowed the applicant to give Tower notice
under the terms of the statute, 52
O.S. Supp.2007 §87.1(e). Failure to pool Tower's mineral interests in the
April 2008 order did not result from an impermissible abdication of authority on
the part of the Corporation Commission, but was rather an oversight of those
seeking the forced pooling.
¶25 Appellant's third proposition of error alleges the Commission's order
offends equity. Appellant alleges in its brief in chief that the Commission's
decision finding Tower's interests were not pooled by the April 2008 order will
result in "chaos" and would allow Tower and Thistle to be rewarded for "years"
of silence, taking "an unreasonable period of time coming forth to assert
ownership rights[.]" Thompson v. Johnson-Kemnitz Drilling Co., 1943 OK 316, 145 P.2d 422, 425.3
¶26 In support of its equity claim, Appellant cites Thompson v.
Johnson-Kemnitz Drilling and McClain v. Ricks Exploration Co., 1994 OK CIV APP 76, 894 P.2d 422, 431. In
McClain, lessors sought to have their leases cancelled and the mineral
interest ownerships be deemed to belong to the lessors and not the lessees. The
court found the lessors waited too long to speak up to assert their alleged
ownership. Id. at 431.4 The lessors in McClain waited over a year to
assert their alleged ownership, with one of the lessors asserting participation
in the profitable well a year after the well was started and over two years
after the start of the first, less profitable, well. Id. at 430. The
Thompson court reached a similar conclusion, upon a delay of almost a
decade in the defendant lessees being brought into the litigation.
¶27 Appellant claims Tower remained silent "for years" in order to avoid the
pooling order. However, this characterization is not supported by the record.
Tower and Blackburn entered into the lease agreement months before the pooling
application was filed and the terms of the Tower-Blackburn lease, including the
lease expiration date, were completely available to the pooling applicant during
the entire pooling process. And Tower filed an affidavit of notice in September
2008, only five months after the April 2008 Commission order, in which Tower
asserted it was not a respondent to the pooling proceeding and was not subject
to the pooling order. Production of the unit well began in August 2008, seven
weeks prior to Tower filing its affidavit of notice. Appellant's allegation that
Tower held back for an unreasonable "two years," while the operator assumed all
the risks of drilling, is not an accurate presentation of the record and
McClain and Thompson are not analogous to this case.
¶28 Appellant's fourth proposition of error alleges the Commission's decision
will diminish drilling funds for the entire industry in Oklahoma, citing
Anson Corp. v. Corporation Comm'n of the State of Oklahoma, 1992 OK CIV APP 37, 839 P.2d 676, 680.5 This is an extension of
Appellant's equity argument, asserting Tower manipulated the pooling process so
as to await the profits and then seek to assert its ownership outside the
pooling order once profits were assured. As stated previously, Claremont has not
supported its allegations of an unreasonable delay on the part of Tower with the
record provided.
¶29 Appellant's final proposition of error alleges the Commission erred in
permitting terms of the Tower-Blackburn lease to control, though the pooling
order prohibited inclusion or adoption of the lease terms. Appellant's argument
in this respect claims Blackburn's lease was perpetuated by commencement of the
initial well, which did not begin until after the lease expired. The language
Claremont relies on is as follows:
SPECIAL PROVISION: The Commission finds that the Oil and Gas Lease
by and between Tower Royalty Company, LLC and Blackburn Properties, Inc.,
dated the 27th day of March, 2007, covering approximately 157 mineral acres
in the Southwest Quarter of Section 30, Township 15 North, Range 4 East,
Lincoln County, Oklahoma, did not constitute an arm's length transaction and
that this pooling order shall be issued denying the (1) inclusion of the Oil
and Gas Lease Provisions as found in said lease; (2) the no cash bonus with
an (sic) 1/4 total excess royalty alternative for the rights in lieu of
participation; and (3) the option to establish a $1.00 per acre bonus
consideration in return for the delivery of a 75% net revenue
interest.
¶30 The record reveals the Corporation Commission included the "special
provision" to address the fact that the Tower-Blackburn lease was not an arm's
length transaction, and the lack of arm's length dealing is specifically stated
within the special provision itself. There is nothing in the 2008 order or the
special provision that supports Appellant's argument that the habendum clause or
the commencement of operations provisions of the lease were disavowed by the
April 2008 order. For this reason, the commencement of operations after the
lease expired did nothing to perpetuate the lease term and the lease expired on
March 27, 2008, as the parties so stipulated.6
¶31 Appellant argues any reevaluation of the meaning of this clause is
prohibited as a collateral attack on the 2008 order. However, the Corporation
Commission may clarify a prior order, which was the nature of Appellant's
request when the current matter was removed to the Corporation Commission in
2010, after Tower and Thistle filed their quiet title action in Lincoln County.
Kaneb Prod. Co. v. GHK Exploration Co., 1989 OK 11, 769 P.2d 1388, 1391 ("The
Corporation Commission may clarify or supplement its orders but it may not
collaterally attack a prior Commission order."). Claremont has provided no
authority, and we have found none, in support of the proposition that the
Commission order revived and then perpetuated a lease that expired prior to the
issuance of the Commission's order. No relief is warranted upon this proposition
of error.
III. Pomona Production, L.L.C.
¶32 Appellant/Pomona asserts three propositions of error on appeal. First,
Appellant alleges the jurisdiction of the Corporation Commission attached to the
working interests when Orca, the pooling applicant, first obtained service on
Blackburn and the date of the pooling order is not fatal to pooling Tower's
interests, because Blackburn was the lessee when proceedings began. Appellant's
second proposition of error alleges Tower and Thistle's claims are an
impermissible collateral attack on the Commission's 2008 order, depriving Pomona
and others of vested property rights. Finally, Appellant argues it was error for
the Commission to find the Tower-Blackburn lease expired on March 27, 2008.
¶33 Appellant argues in its first proposition that Chancellor v. Tenneco
Oil, Inc. and Harding & Shelton, Inc. v. Sundown Energy, Inc.,
demonstrate the Corporation Commission's jurisdiction over the working interests
in the spacing unit attached at the beginning of the pooling process and not at
the point of the order. With respect to Tower and Blackburn, this argument
depends on the supposition that Tower holds the same interest Blackburn held
during the term of the lease, which is not the case, because the leasehold
interest Blackburn held when it was served for the pooling proceeding was not
transferred to Tower, but rather ceased to exist when the lease expired.
Ellison v. Skelly Oil Co., 1951 OK 122, 244 P.2d 832, 836; Hinds v.
Phillips Petroleum Co., 1979 OK
22, 591 P.2d 697, 699. This
proposition relies on the same authority Eagle Energy cites in support of its
first proposition of error. Having addressed these arguments in examining Eagle
Energy's appeal, we reach the same conclusion here; when the lease estate ceased
prior to the Commission's order, the pooling applicant could not bootstrap its
pooling efforts against Blackburn and impose those efforts directly onto
Tower.
¶34 Pomona's second proposition of error argues it held vested property
rights as a result of the April 2008 pooling order and those rights cannot be
upended by an impermissible collateral attack on the Commission's order. 52 O.S. § 111.7 This argument accuses the
Commission of modifying or changing its 2008 pooling order in a manner
prohibited by § 111 and caselaw. Union Texas Petroleum v. Corporation Comm'n
of the State of Oklahoma, 1981 OK
86, 651 P.2d 652, 659.
However, Appellant requested the Commission clarify its 2008 pooling order after
Tower and Thistle's quiet title action was filed, to clarify whether Blackburn's
interest, and then Tower's interest, in the spacing unit was pooled by the April
8, 2008 order. Pomona's attempt to now argue the Commission's order is an
impermissible modification simply because the order was not clarified in the
manner Pomona sought is without merit. In answering Appellant's question, the
Commission acted within its authority to clarify the 2008 order.
¶35 Appellant's final proposition of error alleges the Tower-Blackburn lease
did not expire on March 27, 2008, prior to the issuance of the Commission's
order and correspondingly, the Blackburn leasehold interest was a present and
ongoing concern when the order issued, making it valid as to Blackburn and any
entity that comes after Blackburn. In support of this proposition, Pomona
asserts Special Energy commenced well operations in December 2007 and mechanical
problems intervened preventing actual drilling operations prior to the March 27,
2008 expiration of the lease.
¶36 This proposition is without merit. Pomona stipulated to the fact the
Tower-Blackburn lease expired on March 27, 2008 and there was no rig actually
drilling or capable of drilling the unit well at the time the lease expired.
Stipulations are solemn admissions and a party to the stipulation is not
relieved of the stipulation lightly. Bonner v. Oklahoma Rock Corp., 1993 OK 131, 863 P.2d 1176, 1181 n. 15
("Stipulations are solemn admissions. Unless a court, upon request, finds a
tenable legal ground for relieving one from the legal effect of a stipulation,
such judicial admissions are generally binding and conclusive on the parties as
well as on the court.").
¶37 Pomona also argues the pooling order vitiates the commence production and
habendum clauses contained in the Tower-Blackburn lease. The record does not
support this position. The provision Pomona claims denies inclusion of the
Tower-Blackburn lease terms was addressed to the issue of fair market value and
did not repudiate the entire lease. The lease provision requiring a drilling rig
both capable of drilling and actually drilling in order to extend the primary
term of the lease was not repudiated by the pooling order. Further, Appellant
has cited no authority for the proposition that a Commission order issued after
the expiration of a lease can reach into the past and extend the term of the
already expired leasehold estate.
¶38 The order of the Oklahoma Corporation Commission, denying Appellants'
motions to reconsider the Commission's finding that "Pooling order No. 552381
entered by the Commission on April 8, 2008, does not pool or otherwise affect
the rights, titles, interests or obligations of either Tower Royalty Company,
L.L.C. or Thistle Royalty Company, L.L.C. with respect to any mineral interests
they own" in the disputed pooling area, is AFFIRMED.
HETHERINGTON, V.C.J., and BUETTNER, J., concur.